Shrikant Chouhan, Executive Vice President, Equity Technical Research, Kotak Securities, said from now till the end of FY22, we expect modest returns from the Indian market considering strong economic recovery and gradual increase in global and domestic bond yields.
In an interview with Moneycontrol’s Kshitij Anand, Chouhan said for the time being at such a high base we need to focus on Largecap companies with a decent upside or limited downside.
Here are edited excerpts from that interview:
Q) Market hit fresh record highs amid strong retail push and abundant liquidity with domestic institutions. What is your call on the market – and how long do you think the music will last?
A) The Nifty50 marched to new lifetime highs and is currently trading at 22.4x on FY22E and 19.5x on FY23E earnings. We expect Nifty50 earnings to grow by 29.2% in FY22E (EPS Rs 727) and by 14.8% in FY23E (EPS Rs 835).
From now till the end of FY22, we expect modest returns from the Indian market considering strong economic recovery and a gradual increase in global and domestic bond yields.
By the end of FY22, investors would start discounting FY23 earnings. Considering a 300-400 bps premium of equity PE over bond PE we can justify Fwd. PE of 20x for Nifty-50. On FY23E EPS of Rs.835, we can expect Nifty-50 to end FY22 somewhere ~16,700 (+/- 500 points).
We also expect India’s valuation premium to remain extended over peers with improving corporate fundamentals and strong FPI flows.
Overall, we are expecting a broad-based recovery for Indian markets and expect it to continue to do well over FY21 to FY23E.
Q) Your take on the outcome of the RBI meeting. How long will RBI be able to maintain rates? And if rates are increased do you think it will lead to risk-off sentiment?
A) The policy decisions remained broadly in line with expectations, but notably they are signaling a subtle shift towards the beginning of policy normalization.
We see the repo rate remaining unchanged in FY2022, however, we do expect incremental liquidity measures to follow before the onset of the reverse repo rate hike in December.
The additional 14-day VRRR is gradual and is expected to have a limited impact on the overnight rates in the near term, and this is the first signal towards calibrating liquidity.Tools like overnight VRR, further increase in quantum of VRRR, and allowing non-bank participation in the VRRR could be further announced as measures before the onset of policy normalization.
We do not expect the MPC to change its stance in the October policy, although the split voting pattern could increase further.
We expect a hike in the reverse repo rate around the December policy after the risks of a new Covid wave fade amidst the higher pace of vaccination and visibility for durable growth.
We think the markets are likely to start factor this. In fact, the bond markets already are pricing in anticipation. We, hence, expect that a strong global and domestic economy and likely earnings are likely to offset the marginal impact of the hikes. The likelihood of surprises from Fed actions is more than that of the RBI.
Q) Small & midcaps outperformed Nifty50 so far in 2021 and hit fresh highs in August. How should investors play this theme? Time to turn cautious, or the momentum will continue?
A) After the massive run-up in the short term, we feel at current levels, we need to be selective.
Take profit wherever there are windfall gains or exit out of those investments which are underperforming in your portfolio.
Q) What is your take on the telecom pack especially the developments around Vodafone? What should investors do?
A) We need to see how the government and TRAI handle the development, which is unique but if we consider the entire sector then we feel, there is still decent upside potential for other major players like Bharti and Reliance.
Q) What is your view on MF data for July — where is the smart money moving?
A) Flows are increasing and in fact domestic institutions have managed to offset most of the selling pressure from FIIs in the month of July.
FIIs sold to the tune of Rs 23,193 crores while domestic funds infused nearly Rs 18,392 crores. Smart money is entering in largecap but underperforming stocks.
Smart money is searching for quality and value. Since the beginning of the month of August we saw flows for Bharti Airtel, Britannia Industries, Escorts, ITC, and HDFC Ltd.
Q) Where do you think there are opportunities for alpha generation?
A) We feel, for the time being at such a high base we need to focus on Largecap companies with a decent upside or limited downside.
Q) August was awash with IPOs? Most of the IPOs got fully subscribed at least the retail portion on Day 1. Does this mean that the appetite of new-age retail investors have multiplied especially in the last 12 months or so. Is it for listing gains or long term wealth creation?
A) The following factors are driving retail investors towards IPO
1) Low-interest rates on Fixed Deposits and Other saving schemes
2) Listing gains on IPO with attractive pricing.
3) Millennials are embracing the market in a big way.
4) New Age tech companies provide investors an opportunity to be part of their fast growth story.
5) Herd Mentality
6) Fundamentally sound companies providing investment opportunities.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
