Raghvendra Nath of Ladderup Wealth Management feels the government is working with a lot of financial constraints right now and there is a very high chance of large fiscal slippage in the current year as well as the next year.
In such circumstances, the government may increase its expenditure in key sectors to give impetus to Economic growth. But there may be little change in Tax rates, he said in an interview with Moneycontrol’s Sunil Shankar Matkar.
The Managing Director, who leads private wealth management business at Ladderup Wealth Management feels a big risk today is valuations which are stretched now for most high-quality growth stocks. Therefore, one should temper down the expectations of future returns.
The benchmark indices nearly doubled with the Nifty50 trading at 14,750 today, against 2020 low of 7,511 seen on March 24.
Q) The Indian equities are trading at record highs now. Should one prepare for a bigger correction in the coming weeks? Also, will that be the right time to buy again?
A) The recent rally is primarily driven by three factors – a sharp economic revival in the last few months kindling hopes of a return to normalcy; initiation of vaccination globally raising a possibility of containing the pandemic; and an unprecedented deluge of funds from foreign portfolio investors in the Indian Equity Markets.
Considering all these three factors which continue to remain relevant, any large corrections immediately are unlikely, unless they are driven by changes in either global macros or global sentiments.
At these levels, further investment in equities is recommended only when one has a long-term orientation and with a downside risk of 15-20 percent. It may be wise to look at investing at times of corrections and to invest systematically.
Q) What is your view on the global economy?
A) Except for a few nations, which are still imposing serious lockdowns, most countries globally have opened-up their economies and are also managing the pandemic at the same time. As a result, most components of the Global economy have started moving upwards to a lesser or larger extent. The global economic recovery in 2021 may be quite sharp as most countries have provided large amounts of fiscal and monetary stimulus. Also, with most sectors opening-up, consumption is going to go up sharply.
Q) What sectors look attractive now?
A) In terms of valuations, Industrials and Cyclicals are looking attractive. From a longer-term perspective, one can enter the discretionary space as it was the most impacted. So ideally, companies with lower debt and market leaders from this space can be looked at. From a valuation perspective, even some profitable PSUs also look good.
Q) Do you think FPI money flow as well as FDI will continue into India in 2021 and will it be more than 2020, why?
A) The foreign inflows into the Indian markets would continue as most people are still optimistic about India’s growth story. Also, India has handled the COVID in a far better manner as opposed to its major counterparts. However, the intensity of inflows would reduce as the inflows witnessed in November and December can’t sustain in the longer term. Moreover, some part of that was also attributable to the MSCI index rejig. However, foreign investors would continue to be net buyers in the Indian markets as we are better placed for recovery as opposed to other emerging markets.
Q) What are the key risks for markets? Also, do you think Joe Biden’s policies will boost the US economy?
A) From the domestic industry perspective, India is well placed in the macroeconomic outlook, the RBI has maintained sufficient cash balance to take care of any volatility, the latest inflation data-points have shown that it has cooled off which was one-factor undermining interest rates.
For the US economy, however, we have seen the unemployment numbers increasing which creates an overhang in the near term. If the talks around the $ 1,900 billion in stimulus payment in the US should sail through, it would see a large spike in disposable income which will trickle down to consumer spending.
The big risk today is valuations which are stretched now for most high-quality growth stocks. Therefore, one should temper down the expectations of future returns.
Q) What is your take on the upcoming Union Budget?
A) The government is working with a lot of financial constraints right now and there is a very high chance of large fiscal slippage in the current year as well as the next year. In such circumstances, the government may increase its expenditure in key sectors to give impetus to Economic growth. But there may be little change in Tax rates.
Q: The RBI in its Financial Stability Report expressed concern about high potential NPAs of the banking system which may rise above 14 percent. Some experts feel PSU banks are likely to be under strain and the well-capitalized large private sector banks are strong and are likely to gain from the woes of the PSU banks. Do you agree?
A) The banking sector shall indeed be under strain because of the COVID related defaults. The banking space is one of the worst-hit due to COVID as the lockdown of 3 months had hit the financials of many unsound businesses. The direct impact of which could be felt in the NPA numbers rising. Many small and medium enterprises have permanently shut shop and these stresses would sooner or later get reflected in the NPAs of banks. The impact could be universal, however, the PSUs may face a little higher stress in comparison to private banks. There has been an ongoing gradual shift happening away from the PSU banks over the past many years because of inbuilt inefficiencies that are very hard to correct.
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