Axis Securities Chief Investment Officer Naveen Kulkarni thinks that the recent surge in US bond yields is a short-term risk as it impacts global valuations as well as emerging markets. He, however, doesn’t see the Nifty slipping below the crucial 13,000-mark in the financial year 2021-22 that gets underway in a week’s time.
The rise in coronavirus cases is a concern but the rollout of vaccines will mitigate the risks, says Kulkarni. The Axis chief investment officer expects March quarter earnings to be mixed, with rising input costs denting the numbers. In an interview to Moneycontrol’s Sunil Shankar Matkar, Kulkarni says he expects IT and metals to report strong earnings along with top private banks. Edited excerpts:
Do you think the market can break the 13,000-mark in FY22 and slip to 12,400 as it did in January 2020?
It seems quite unlikely that the market will break the 13,000-mark. The market correction in the present circumstances is driven by technical factors like rising global bond yields, rebalancing in global ETFs and others. This is likely to get over by March and April should see focus on corporate, which in the present circumstances appear robust.
Is the surge in the US bond yields a major risk for India than the rising COVID-19 infections? What are other risk factors that one should keep monitoring in the coming financial year?
The surge in US bond yields is a short-term risk as it has an impact on global valuations as well as emerging markets. The rising COVID infections are also a concern but the vaccination roll-out will keep mitigating the risks of COVID infections. The other key factors are input costs and their impact on corporate earnings in FY22. Also, inflationary risks and a rise in bond yields in India will be a risk to watch out for.
What are your broad expectations from March quarter earnings that kick off next month? Will it set a strong tone for FY22 earnings?
The March quarter earnings are likely to be mixed. While the underlying revenue and demand scenario should be robust but rising input costs will be a challenge, which will dent the corporate earnings. Management commentary on cost structure management and underlying demand trends will be the critical aspects of Q4 earnings. The overall tone for FY22 should be good, considering BFSI should report a decent set of numbers.
Which are the sectors that are expected to report strong and weak earnings in the March quarter?
IT will report strong earnings as operating performance and deal wins continue to be strong. Metals will also report strong earnings. The top private banks will also see strong earnings growth, while the weaker ones will be impacted by rising input costs. Automobiles will be a key sector to watch out for. Consumer staples is another sector to monitor the margin impact.
FMCG sector was the underperformer with 20 percent gains in FY21 against more than 50 percent rally in other indices. Do you think it is the right time to pick these stocks?
The FMCG sector has some tail winds of demand scenario improving but also headwinds of rising input costs and steep valuations. The FMCG sector is a defensive bet and allocation to the sector should be limited in an earnings revival scenario.
If the correction extends in coming weeks, what should investors look for in sectors and stocks? What should be the pecking order in terms of percentage in the portfolio?
Investors should look at buying top private banks like ICICI Bank and some public banks like SBI. This can be followed up with IT and metal stocks, which are good bets in such a market scenario.
Q: After 30 IPOs in the financial year 2020-2021, do you expect more in the coming financial year? Will the government be able to divest two private banks and bring LIC IPO in FY22?
LIC IPO is a complicated process because of the sheer scale of the business. This IPO will need even better market conditions to sail through in our opinion.
Q: Do you think the Reserve Bank of India will give a hint about a rate hike in FY22? Will the central bank revise its GDP and inflation forecast in April meeting?
It could take some time and inflation print will be critical. GDP forecast could be revised but that will have a limited impact on the policy stance in the medium term. The RBI will have to keep a watch on global as well as domestic factors. However, it seems that the RBI’s intent will largely remain to maintain an accommodative stance.
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