The yr 2022 might be completely different from the previous few years. However, Indian markets will proceed to commerce at the next valuation backed by robust company profitability and prospects of inflows from international traders within the upcoming months, says Shiv Sehgal, president & head, institutional equities, Edelweiss Securities, in an interview with Ruchit Purohit. Edited excerpts:
What is your outlook for the markets for the present yr from right here onwards? Have we already priced in elements like geopolitical disaster and the aggressive Fed fee hikes?
This yr might be going to be a really completely different yr from the final two. Prior to this, because the March 2020 backside, in our nation and globally, too, I really feel that it has been a buy-and-hold technique, which has labored very effectively. This was primarily owing to coverage setting each globally and in India to help development and nurture restoration. However, this now appears to be altering with policymakers now seeking to decisively tame inflation (late cycle) as in comparison with supporting development (early cycle) within the earlier years. Not solely that, the tempo of tightening might be the quickest seen in a long time.
US 2 years, has jumped by 200bps in final 6 months — an unprecedented rise. This is thus main a pointy rise in volatility and a uncommon phenomenon of each debt in addition to equities being beneath stress. This cautious method additionally exhibits up in my interplay with shoppers – the place focus has shifted from attempting to find multi-baggers to defending capital. The general market notion has additionally moved from ‘buy and hold’, to a buying and selling mentality. Going forward, Fed is speaking about 7-8 fee hikes. I really feel that Fed won’t be able to be so aggressive as world debt stays fairly excessive, thus making it very weak to tightening. There is a threat that world development slows down materially, forcing Fed to again off earlier. However, this will not be all unhealthy for India as commodity costs may cool, and given India’s greater development potential earnings on relative foundation could possibly be higher. The draw back threat to Nifty is round 15,800-16,000, whereas on the upside we are able to see 19,500-20,000 by year-end.
With rising commodity costs, inflation, and the continuing geopolitical considerations, have you ever tweaked your earnings estimates?
The impression of commodities on general Nifty earnings is impartial to constructive, given the big weight of commodity sectors current in it. Thus, to that extent, draw back threat on combination earnings will not be materials. However, the larger fear is prone to be on earnings excluding commodities as demand was weak to start with and enter worth shock is simply prone to compound the issues. Thus, going forward there can be materials draw back dangers to Nifty earnings (excluding commodities).
FPIs have offered greater than $20 billion since October, nevertheless, the markets nonetheless held some floor amid home shopping for. What is your view on FPI flows within the coming months and the impression?
From October to December of final yr, there was a little bit little bit of rotation within the rising market mandates from development to worth. India, being a development market was on the receiving finish, particularly given the excessive valuation premium at which it was buying and selling. The Russia and Ukraine disaster solely compounded the issue. However, the constructive component of that was the home move. In India now, fairness as an asset class is getting greater and greater, and it ought to proceed to take action going ahead. In my view, going ahead, inside the rising markets, India will proceed to share a bigger pie, given the robust stability sheets and better development potential. This will certainly appeal to FPIs again as finally flows are pushed by fundamentals. India will proceed to commerce at the next valuation on the again of company profitability and prospects of FPI inflows within the upcoming months. The key threat being persistently hawkish Fed.
New-age tech firms that listed final yr have confronted a number of challenges to this point, what’s your outlook on these firms?
Some of the new-age firms in India are literally fixing one thing within the equilibrium the place there’s an unmet demand or what a number of the giant conglomerates haven’t been capable of. Further, the fintechs that obtained listed within the US by December 2021, have been all beneath the water. About the correction that we noticed in new-age firms like Paytm on its itemizing, I feel there was a component of it being excessively priced. Specifically, they nonetheless must execute and present that clear path. I feel they’ve ventured into too many issues however they have to be targeted on what they wish to win. The pullback in a few of these firms, particularly the likes of Nykaa, supplied an excellent alternative to purchase. There are some very attention-grabbing firms within the pipeline like Pharmeasy, of which if I take the three- to five-year view, it may be a multi-bagger. If we have a look at the demand facet of the equation in India and the demographics we now have, a well-run firm has the potential to be as giant as a few of their world friends like Amazon, and many others. Overall, there’s a very wholesome pipeline of new-age firms that can come to market within the upcoming months and years, and I feel there ought to good urge for food for them, so long as valuations are cheap.
What are your views on pricing/valuations of the upcoming LIC IPO and can it dry up liquidity from the markets?
The market notion is one thing no one can get proper on a regular basis. If Nifty is at 20,000, then in fact there could possibly be urge for food for a a lot greater valuation. However, no one is aware of that and I don’t have a crystal ball both. But I do really feel from a longer-term perspective, the federal government ought to look to cost it at an inexpensive valuation for the traders, given its giant dimension. Yes, when the IPO is available in, a number of the mutual funds, insurance coverage firms will in all probability promote to prop up money for investing within the IPO. However, that is typically a brief blip reasonably than anything.
Overall, what themes might be in play throughout the monetary yr 2022, will financials see a rebound?
I feel, each quarter, issues are shifting so quick that for me to say that, a yr appears to be a very long time. At the second, we’re very bullish on commodities and I feel commodities are in a multi-year cycle, and we see extra upside in commodities. I’m personally very bullish on your entire know-how house, too, in India. Not solely the large-cap, but in addition the mid-cap know-how firms ought to do very effectively, regardless of the current pullback within the short-term. Further, this yr, financials will do very effectively and folks might be shocked with development.
Source: www.financialexpress.com”