All factors in the economy are conducive for an accelerated growth and the economic revival would be supported aptly by corporate earnings, believes Raghvendra Nath, Managing Director at Ladderup Wealth Management.
He feels the rise in US yields is a major factor which will determine the flow of international equity. “Another factor that one should stay cognisant about is the rising inflation globally as it induces cost inflation pressure which, in turn, can lead to a bubble with no demand,” said Nath in an interview to Sunil Shankar Matkar of Moneycontrol. Excerpts from the interview:
Do you think that the market rally will continue without any major correction of say, 10-15 percent, given the global cues? And, how about the Sensex reaching 200,000 in the next 10 years?
The markets will continue their upward journey, it may keep on reacting to situations now and then, however, the long-term trajectory is always positive. Corrections are a part of every bull run, however, these corrections are usually short-lived. Given the current macroeconomic environment, all factors in the economy are conducive for accelerated growth and the same would be supported with earnings growth.
To reach the 2-lakh mark by 2030, the Sensex needs to average an annual growth rate of 14-15 percent. Historically, this is the pace with which Sensex has grown and it is highly possible for it to compound with that pace.
Most sectors have participated in the current bull run, giving double-treble-digit returns in the last 18 months. What are those key sectors that will lead the next rally from the current levels and why?
The rally in the coming months would be stock-specific, and not sector-specific, however, the industry that’s likely to benefit most from it is manufacturing. International industry bodies are planning to move their production away from China and some of the Indian companies should be able to address the international quality and standards. Another theme which will play out is reopening or resumption of operation in hotels and the textiles industry as normalcy returns. These are the sectors which were most impacted and are most likely to benefit with the return of normalcy.
Realty stocks saw a healthy run-up in the last several weeks on expectations of strong festive demand and low interest rate environment. Do you think one should still continue to invest in realty stocks?
Interest rates in India have been at historic lows, thus, for an individual it would be a good time to buy a house. Adding to that the real estate prices have remained stagnated for the last 5-7 years with no material upward movement which adds to your cushion and with the current increase in construction cost, the chances of under-cutting are little. These factors are in turn positive from the perspective of owning a house.
However, if one is looking from an investment perspective, the appreciation in retail real estate assets historically hasn’t been able to beat inflation. If you are looking to invest into real estate assets, then you should look at commercial real estate which are high-yielding and a bit more liquid and better from an investment perspective.
SIP inflow was at a record high, crossing Rs 10,000 crore in September. Do you think the SIP inflow will continue to firm up?
Investors are now looking for diversification and, instead of investing in traditional assets like real estate and gold, we see investors are turning to financial assets and making their investments in a more systematic manner. This trend of financial savings is likely to continue going forward as the financial assets are more liquid and offer better tax-optimised returns to the investor.
On top of it, by investing a fixed amount every month from your regular savings you are not timing the market and are benefiting from the power of compounding over the long term.
Since mutual funds help diversify risk by investing in a diversified portfolio of stocks and debt instruments, people prefer mutual funds as an investment and historical long-term returns of SIP in both equity and debt funds have been much higher than bank Fixed Deposits interest rates. Thus, as people become more and more aware these flows are bound to increase.
Is it the time to add solar energy stocks in a portfolio and why?
Themes will come and go. Power and renewable energy is the flavour of the day today; tomorrow it may be something else. To buy any company in the portfolio one should look its price and fundamentals. For the long term, companies should grow in revenues and profitability. As without profitability they can’t sustain.
A very good example is Suzlon. During 2008-09, the company achieved great heights in terms of product quality, however, sustainability of earnings is what caused huge losses to investors. So, rather than picking out themes, one must identify companies which are secular growing in nature both in terms of profitability and revenue growth.
What are the risks that one needs to consider while investing in the equity market now?
The rise in the US yields is a major factor which will determine the flow of international equity. In terms of FII investments in India, the rise in yields in developed markets generally creates a trend of investments moving away from the emerging markets as risk premium rises.
Another factor that one should stay cognisant about is the rising inflation globally as it induces cost inflation pressure which in turn can lead to a bubble with no demand.
On the domestic front, there is also a very large government borrowing programme in the current year, so one will need to have a watchful eye on developments surrounding it.
Also, the huge line of IPOs, including the mega IPO of LIC of India, would take liquidity away from the markets which can dry up the current leg of liquidity -riven rally. So one should remain cognisant of the same.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
