Gaurav Dua of Sharekhan by BNP Paribas, expects India to emerge among the fastest-growing economies globally despite the country grappling with a second bout of COVID-19.
In an interview with Moneycontrol’s Sunil Shankar Matkar, Dua said that even though the second wave has sobered FY22 GDP forecasts, a growth of about 9 percent can still be on the cards.
Dua is a market veteran of over 20 years and currently serves as the SVP, Head – Capital Market Strategy at Sharekhan.
Edited Excerpt:-
Q: With cases finally on a decline, do you expect foreign institutional money to return in the coming months?
After a gap of almost eight months (since July 2020), retail inflows turned net positive since April. In the case of foreign institutional investors (FIIs), the flows tend to be quite volatile and unpredictable. The trend could remain volatile due to the healthy economic recovery in the US and Europe as compared to emerging markets. Also, a lot would depend upon the pace of economic recovery with the withdrawal of restrictions.
Q: Which sectors can continue to prosper despite the threat of a third wave?
With the demand expected to revive sharply post opening up of the US and Europe, we expect export-oriented companies in pharma, IT services, home textiles and some select auto ancillary and industrial to be least impacted by lockdowns. However, the focus currently is on domestic cyclicals due to moderation in the second wave and expected opening up of the economy.
Q: What are the key risks for equity markets apart from COVID?
Rising commodity prices and the risk of high inflation are the biggest risks for the equity market globally.
Q: Do you think US Fed downplaying inflation amid rising commodity prices could disrupt markets?
Currently, the inflationary pressure is seen as transitionary in nature. But a high level of inflation for a longer period of time could prompt central bankers to relook at their monetary policy stance.
Q: What is your take on equities in the current scenario?
We are positive on equities. In terms of portfolio strategy, it makes sense to have a balanced mix, both in terms of largecap and midcap as well as exposure to growth & value stocks.
Q: Do you foresee double-digit GDP growth in FY22?
An extended period of lockdown poses a risk to the expectations of 10 percent-plus growth in GDP for CY2021, but we believe that it could only shave 100-150 bps of growth in the economy. So with around 9 percent growth rates also, India would be among the fastest-growing economy globally and corporate profits would surge by over 20 percent in FY2022.
Q: Your take on March quarter earnings? Have you lowered you earnings estimates of FY22
Earnings season has been largely in line with expectations. On the brighter side, the management commentary suggests confidence in the recovery of demand and improvement in business post-withdrawal of restriction. Consequently, we have seen more upgrade than downgrade in this result season and expect consensus FY2022/FY2023 estimates to remain stable.
Q: The border market has outperformed largecaps in 2021. Do you expect the trend to continue?
Despite the recent outperformance by midcap/smallcap space, we still see many interesting investment opportunities in domestic cyclical sectors. However, it is advisable to be very selective now.
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