In his first interview to the media since becoming the MD & CEO at Yes Securities, Prasanth Prabhakaran said that the major takeaway from 2020 was that leverage is a portfolio killer.
“Habit of keeping emergency cash to deal with disruptions in markets or incomes is necessary. This cash will also be opportune for bargain hunting,” he added.
He feels given the ferocious rally in global riskier assets, a moderate correction cannot be ruled out. But the abundance of ultra-cheap liquidity will limit the downside, and any retracement will take shape of a lucrative opportunity for savvy investors.
edited excerpt:
Q) Do you think FY21 advance estimates of GDP growth hint at significant improvement in H2 FY21? What are you broad economic growth expectations for FY22?
A) After a contraction of 15.7 percent during H1 FY21 GDP, a sharp reversal in frequency indicators during H2 FY21 indicates that economic activity has bottomed out. Easing of mobility restriction and a gradual pick-up in economic activities amidst monetary and fiscal policy support is likely to reflect in economic growth recovery in H2 FY21.
Sectors like autos, food products, telecom, electronics, infrastructure, solar, pharma, and chemicals are leading the race to recovery. We anticipate a growth of 0.3 percent during the second half of FY21, with growth for entire FY21 at -7 percent. This is much better than the earlier apprehensions of a double-digit contraction.
For FY22, consensus calls for GDP growth of 8.5-9 percent, though we think the number can surprise us on the upside. Indian Economy has fared much better than feared, given the magnitude of the pandemic induced dislocation on both, the supply and demand.
Mobility has improved across the board, ditto for movement of Goods. Manufacturing and industrial activity is on a V-shaped trajectory, while Service activity is also back in expansion mode after a prolonged period of weakness. History reckons that an era of strong reforms generally precedes sharp rebound in economic activity. Liberalisation measures during the early 1990s and reforms on infrastructure during Atal Bihari Vajpayee regime (1999-2003) is a classic example in this respect. Pertinently, reforms undertaken by the Modi regime over the past few years are poised to reap rich dividends soon.
Q) Do you think the Finance Ministry took appropriate measures to deal with the economic onslaught in the aftermath of COVID-19?
A) We reckon that the Finance Ministry has already unleashed a slew of measures and significant quantum of stimulus to prop the supply side of the equation. On the demand side, it is imperative to augment the disposable incomes of households, which will recalibrate the economic equilibrium.
Q) What sectors could be in focus in the Budget?
A) Given the government emphasis of Atmanirbhar, there is a need to provide further support to the indigenisation of manufacturing in terms of related infrastructure and policy formulation. Needless to mention, the need of the hour is further investments in Healthcare.
Q) What are your expectations from India Inc’s earnings in Q3 FY21?
A) Q3 FY21 expected to better than previous quarter numbers. EBITDA margins (ex-Financials) are expected to expand by around 180 bps on a YoY basis, despite the rise in input costs, significant cost management during COVID period and improved utilisation rates the key. Although Q3 earnings can be construed as a big positive, we reckon that more concrete signals of recovery will be evident in the ensuing quarters given that more sectors (which are troubled) will come out of the woods in the wake of policy support and revival in aggregate demand.
Q) Should investors prepare for major correction of around 10 percent from current levels in 2021? Also, will the market give a double-digit return in the current year?
A) Given the ferocious rally in global riskier assets, a moderate correction cannot be ruled out. Having said that, an abundance of ultra-cheap liquidity will limit the downside and any retracement will take shape of a lucrative opportunity for savvy investors.
Q) What are key takeaways 2020?
A) Key learnings would be that leverage is a portfolio killer. The habit of keeping emergency cash to deal with disruptions in markets or incomes is necessary. This cash will also be opportune for bargain hunting.
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