Arijit Malakar, Head, Research (Retail), Ashika Stock Broking expects the market momentum to continue in the second half of 2021 though he foresees intermittent corrections. These corrections, he says, are an opportunity to pick up quality stocks at reasonable valuations.
Strong Q4FY21 results, reopening of the economy and ramp-up in vaccination are likely to drive the market in the coming months, he says.
In an interview to Moneycontrol’s Sunil Shankar Matkar, Malakar says sectors like IT, BFSI, metal and capital goods are expected to perform well in 2021 as economic activity picks up. Edited excerpts:
Finance Minister Nirmala Sitharaman recently announced some more fiscal measures for the sectors hit hard by the coronavirus pandemic. Do you expect more such steps in the coming months?
The government’s recently announced Rs 6.29-lakh- crore stimulus package is aimed at enabling the survival of firms hit by the second wave of Covid pandemic through targeted credit guarantees. However, providing support through loan guarantee schemes might not be enough to boost the overall economic growth. There is a need to rebuild confidence among the people to boost consumption demand on a sustained basis. Income support to urban workers, higher MGNREGA allocation, wage support to MSMEs, reduction in taxes on fuels, and cash transfers to the poor to boost consumer demand are some much-needed stimulus in this current situation to help the economic growth rebound.
What are your expectations for the June quarter earnings?
The second Covid wave in April-May, 2021 has affected the sentiments and impacted economic activity. Though the restrictions this time were localised and less stringent versus the lockdown in 2020, thus the Q1FY22 corporate earnings will be less impacted during this time.
However, Q1FY22 has witnessed a similar kind of disruption in the wake of second wave of pandemic engulfing India and several states imposing lockdowns in April and May 2021. On a year-on-year basis, there could be growth, while sequentially there will be a steep decline in overall performance.
Which are the sectors that can report strong and weak earnings in the June quarter?
IT, banking & financials, pharma, broking, and metals are the sectors, which remain insulated from adverse effect during the second wave of Covid, and these sectors are expected to deliver much better numbers in Q1FY22 compared to other sectors which faced challenges in their business during that time.
Do you expect the market to add another 10 percent of gains in the second half of CY21 after an over 10 percent rally in the first half of the year? What is your target for the Sensex and the Nifty for the second half?
Positive momentum in the market is expected to continue in the second half of CY21, though there could be intermittent correction and investors should utilise these corrections to pick up quality stocks at reasonable valuations. The fundamental factors like strong
Q4FY21 results and reopening of the economy and ramp-up in vaccination are likely to drive the market momentum in the coming months.
Besides, the global economy is in its best shape which is reflected in a surge in commodity prices and crude oil prices. However, one of the key global factors to look out for would be tapering by the US Federal Reserve followed by European Central Bank. The rise in inflation in developed economies is more of a concern for the emerging economies as funds flow back to the developed countries led by USD appreciation. However, improving corporate earnings in coming quarters on the back of gradual opening up the economy post second wave and increasing Capex by the companies and government amid improving demand are likely to drive the domestic economic growth going forward.
The Nifty has rallied by almost 12 percent since the start of the calendar year, leading (it) to overbought price territory. Therefore, intermittent bouts of volatility might be seen in the second half of CY21. An extended breather from hereon should be capitalised as an incremental buying opportunity around the levels of 15,200-15,400, as one can expect the index to continue its northward journey towards 16,400 in the Nifty and 55,800 in the Sensex.
Also read: Two IPOs to hit market next week; to raise over Rs 2,500 crore cumulatively
The primary market activity in the first half of CY21 was much stronger than the previous year. Do you expect more fundraising via IPOs in the second half of CY21 compared to the first half of CY21?
The activity in the primary market was robust in first half of CY21 on the back of strong positive momentum in the secondary market since April 2020. The factors behind the robust performance are abundant global liquidity because of low interest rates across the globe, improving corporate earnings & economic data, and pick-up in vaccinations.
Around 24 companies came up with their IPOs in the first half of CY21 and raised nearly Rs 39,000 crore from the primary market, which was higher compared to the first half of CY20.
The momentum in the primary market is expected to continue in 2nd half of CY21 in sync with secondary market performance. The fundraising in the second half of CY21 is likely to exceed the level seen in the first half of CY21 as a lot of large companies like Zomato, Policybazaar, Delhivery are in the queue to launch their IPOs.
What are the key sectors which can create multi-baggers in the coming year, and what are the investment rationales?
Sectors like IT, BFSI, Metal, and Capital goods are expected to perform well in 2021. IT sector has entered into a multi-year upcycle because of the higher demand for digitalisation and cloud computing. Momentum in bid deal wins, vendor consolidation, sustainable margins and dollar appreciation are some of the key near-term triggers for the IT sector.
For the banking sector, the stress in assets related to Covid impact has been reduced on the back of liquidity support and emergency credit support, especially to micro, small and medium units (MSMEs), thereby improving the asset quality of the banks and financials.
Further, banks have also strengthened their financials by raising capital and building provision buffers. In the backdrop of improving economic data amid receding Covid cases and increasing vaccination, credit growth would revive in the coming quarters and would be the key to economic growth.
The US government’s massive stimulus package of $ 1 trillion to revive the infrastructure has upgraded the earnings outlook of the global metal sector. Reviving the global economy, increasing private Capex, Russia imposing an export duty on metals, Chinese curbing production due to environmental concern, and the low-interest regime are expected to drive the metal prices further.
Most of the manufacturing companies have been operating at around 80-90 percent capacity utilisation prior to the second wave and they need to expand the capacity to meet the demand. Thus, the capital goods sector will be in focus on the backdrop of private and government capex’s drive to revive the economy.
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