Vinod Nair, Head of Research, Geojit Financial Services thinks the recent rise in bond yields, inflation, high valuations and a spike in India’s coronavirus cases has led to volatility in the market.
He thinks a short-term correction will be good for the Indian equity markets and he is upbeat about the year ahead. In an interview to Moneycontrol’s Sunil Shankar Matkar, he says the financial year 2021-22 will be good for the primary market because the outlook for the economy and market has got better. Edited excerpts:
The market has continued to trade in a range for the last month, especially after hitting a record high. Do you think a steep correction of 10-15 percent is warranted?
Yes, a correction will be good because the market has factored in the upgrade in earnings, the dream union Budget, financial support and reforms initiated in the economy. The recent rise in bond yield, inflation, a second-wave risk in India and high valuation has added volatility in the market and calls for a short-term correction.
What are your broad expectations from the March quarter earnings and do you see more upgrades than downgrades? Will they give enough indications with respect to FY22 earnings?
The preliminary understanding is that March results will be good and we had seen solid upgrades in earnings in December quarter results. More than estimated earnings is also possible given the positive high-frequency data, suggesting good economic activity during January to February 2021. For example, key data like rise in the wholesale inflation, PMI and GST revenue suggests good demand. But a further upgrade in FY22 earnings will be difficult to say today since the EPS forecast is on the higher side of over 25 percent for the Nifty50 index.
What are the sectors that can be in a limelight for FY22, especially after at least a 60 percent rally in every sector barring FMCG? What is your pecking order?
The economy is back on the growth track. Stocks and sectors which will benefit the most from the rise in economic activities and reforms undertaken by the government will perform the best. Green energy ideas, export opportunities in sectors like pharma, chemical, IT and others, PLI schemes beneficiary, auto, infra and industries are likely to outperform.
FMCG was the underperformer in FY21 with just 20 percent gains, while every other sector gained at least 60 percent. Do you think it is the right time to pick FMCG stocks?
The value-buying theme will emerge strongly in the medium to long-term in which FMCG will highly benefit. Today, the theme is growth and on valuation basis, too, they are on the higher side with stable earnings growth. FMCG may continue to underperform in the short to medium term.
Which would be the key drivers that will support the market in FY22?
YoY & QoQ improvement in earnings and long-term easy monetary policy will benefit the equity market. India will benefit from reforms undertaken, especially in the sectors mentioned above.
Do you feel the Reserve Bank of India (RBI) can hike rates in FY22, though it has promised to keep rates low for at least a couple of years?
The possibility of a big change in the policy is low because the economy needs inflation. RBI will not be concerned about the rise in inflation for the short-term. RBI may increase its short to medium inflation and GDP forecast but not the long-term trend and interest rate. The economy needs an easy money policy as NPAs are expected to increase due to the pandemic effect. We expect the official interest rate will be maintained low on a long-term basis.
Will FY22 be another strong financial year for the primary market after 30 IPOs in FY21?
Yes, FY22 will be good because the economy and market outlook has got better. New economy companies and sectors are flourishing in India. Divestment, reform, low-interest rate and easy money policy will help the Indian primary market to continue strong.
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