Shridatta Bhandwaldar of Canara Robeco Mutual Fund feels the market rally has just been a function of corporate earnings upgrades to the tune of around 20 percent during past two quarters, apart from global fiscal push and faster-than-anticipated resolution of COVID-19 (vaccines).
“We expect more consolidation and sideway movement till the time we get further meaningful upgrades in earnings or roll over of valuation to FY23,” he said in an interview to Moneycontrol’s Sunil Shankar Matkar.
The benchmark indices as well as broader markets more than doubled from their lows of March 2020.
The Head – Equities at Canara Robeco Mutual Fund advised that investors should focus more on SPENDING TIME IN MARKET rather than trying to TIME IT.
Edited Excerpt:-
Q: Most experts feel India Inc reported better-than-expected earnings for third quarter in a row. What is your reading on corporate earnings so far and do you expect the strong earnings growth in coming quarters?
Earnings growth upgrades continue through this quarter as well, although at a slower pace than last quarter. The corporate earnings upgrades are driven by, 1) Better-than-expected topline, including some pent-up demand, 2) Banking sector experiencing lower than expected credit costs and 3) OPM margin expansion driven by cost cuts as well as better pricing environment. The earnings are expected to be good driven by opening up the economy and favourable base effect till Q3FY22.
Q: Indian equities turn stronger after every consolidation and correction, and have been hitting fresh record highs. Do you expect the momentum to continue in short to medium term, and why?
Market rally has just been a function of corporate earnings upgrades to the tune of around 20 percent during the past 2 quarters, apart from global fiscal push and faster-than-anticipated resolution of COVID-19 (vaccines). We expect more consolidation and sideway movement till the time we get further meaningful upgrades in earnings or roll over of valuation to FY23.
Q: FII inflow, so far, seems to be highest in India among emerging markets, especially after COVID-19. Do you expect the flow to continue in coming quarters, and what are those major reasons for inflow?
India clearly has witnessed the best FII flows of $ 25 billion during the past six months. Key reason for the strong flow in India has been, 1) Best COVID situation which helped economic activity to recover faster, 2) Banking system witnessed much lower NPAs against expectations and 3) Corporate earnings upgrades of around 20 percent in the past two quarters.
Q: Do you think the COVID-19 is still a major concern in 2021 due to increasing new variants? What are other expected risks (globally and domestically) in coming quarters that can derail the rally seen now?
COVID-19 second wave still remains a risk for India, given we will take much longer than the developed world to vaccinate a large section of the population. Faster and higher-than-expected inflation which in-turn reverses easy liquidity conditions can create risk to the market rally.
Q: What are those sectors you want to add in portfolio and remove from portfolio now, and why?
Financials, discretionary, select industries/Housing are spaces which we are evaluating from an additional perspective. There is modest cyclical recovery in the economy which aids most of these segments.
Q: Banking & financials were the late to rally started in the second half of 2020, but now at the forefront and hit fresh record highs. Will the momentum continue and will you prefer to add the sector in portfolio after current sharp rally?
Banking and financials have reacted to lower-than-anticipated stress in the system. If the slippages remain under control and credit growth recovers meaningfully, we could see continuation of the financials rally.
Q: What should be investors’ strategy now as the market already more than doubled from its low seen in March 2020?
Investors should focus more on SPENDING TIME IN MARKET rather than trying to TIME IT. Equities as an asset class is still likely to deliver superior CAGR returns as compared to other asset classes over 3-5 years. Continue to invest through SIPs.
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