Raghvendra Nath, Managing Director – Ladderup Wealth Management
Raghvendra Nath, Managing Director, Ladderup Wealth Management, sees the rise in bond yields as a major factor for foreign institutional investment in India, as a higher yield in developed markets typically drives investment away from emerging markets like India.
Nath, who trained as an engineer, has an MBA and extensive knowledge of capital markets, said market movements are tied to a host of factors that include both fundamentals as well as behavioural. In an interview to Moneycontrol’s Sunil Shankar Matkar, he says the Nifty can go below 13,000 but there is a high probability that such a deep correction may not be triggered due to weakness in the Indian Economy but because of global factors. Edited excerpts:
Do you think the market can break the 13,000-mark in FY22 and slip to the record low of 12,400 seen in January 2020?
Market movements are dependent on a host of factors that include both fundamentals as well as behavioural. Can the markets go below 13,000? The answer is of course, yes. But there is a high probability that such a deep correction may not be triggered due to the weakness in the Indian Economy but could be because of global factors. At current prices, a lot of the expectations about the economic recovery and future growth has been priced in and therefore any negative outcomes around these factors can impact the markets. But if one were to look at markets from a slightly long term, the possibility of any deep corrections looks remote. The stock prices have historically been a function of earnings growth and the current earnings momentum is on a positive trajectory. The news around the rise in COVID-19 cased and lockdown may cause some jitters in the market, however, the upside trend is likely to continue going forward.
Is the surge in US bond yields a bigger risk for India than the rising COVID-19 infections? Which are the other risk factors one should monitor in the financial year 2021-22?
The rise in yields is a major factor in terms of FII investments into India, as the rise in yields in developed markets generally creates a trend of investments moving away from the emerging markets. This is because the equity risk premium rises in emerging markets, making the cost of equity more expensive. Another factor that one should stay cognisant of is the rising inflation globally as that, too, will have a direct impact on bond yields.
What are your expectations from the March quarter earnings that are to be released next month? Will they set a strong tone for FY22 earnings?
The earnings expectation from the March quarter earnings is expected to be strong and there are a couple of factors which support this. Firstly, since the first few months of the start of the financial year were in the lockdown phase, there would be a component of that driving earning momentum. Secondly, March is always a strong quarter for most companies as it is the end of the financial year and thus there is a lot of traction towards the end. And overall, when you compare it with last year, it would be much better than expected as the fag end of last year was affected by complete lockdown. There is a general expectation that the next two years should see strong earnings growth from Indian companies.
FMCG sector was the underperformer with 20 percent gains in FY21 against more than 50 percent rally in other indices. Do you think this is the right time to pick these stocks?
The FMCG sector is one of the defensive sectors of the market and generally when the broader markets do not perform, money starts moving to this space as the sector is characterised by secular demand growth. As most of the companies in the sector were generally fully valued, the companies in the sector have seen lesser appreciation in stock prices during the last six months rebound. Unlike cyclical stocks, one can buy and hold FMCG stocks over a long periods of time as they are wealth-compounders over the long term.
If the correction extends in the coming weeks, what should investors buy? What should be the pecking order in a portfolio?
A deeper correction in the coming weeks could definitely be a buying opportunity. With the way the Indian growth story is likely to play out, most of the sectors in the economy should see strong demand and therefore, growth in the coming years. Considering the focus of the government and the expenditure that it intends to incur in the coming years, infrastructure and related sectors, as well as banking & financial services, are likely to benefit a lot in the coming few years.
After 30 IPOs in the financial year 2020-21, do you expect more IPOs in the new financial year? Will the government be able to divest two private banks and bring LIC IPO in FY22?
Most companies would like to access the capital markets when sentiments are positive as the valuations are always richer in such times and the ease of subscription goes up. We are now looking at a multi-year rally and if the market sentiments remain bullish, there should be a spate of IPOs in the coming years.
Markets are eagerly expecting the LIC IPO as that would be one of the biggest companies in India to enter capital markets. As for the other disinvestments, it would solely depend on the kind of valuations that the government expects on divestments.
Will the RBI in its April meeting give a hint on rate hikes in FY22, though it has promised to keep rates low? Will the bank revise its GDP and inflation forecast in the meeting?
The RBI is likely to maintain its accommodative stance for at least the next few quarters. It has already started pulling back excess liquidity in the system but there is very little likelihood of any increase in interest rates, at least in the first half. There is also a very large government borrowing programme in the current year and the RBI would like to see it through without any changes in interest rates. The possibility of rate hike would arise only if inflation goes up beyond the comfort zone and is sticky.
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