The Indian economy represents a unique combination of ‘demographic’ advantage in a conducive ‘democratic’ set-up that drives the ‘demand’. The equation between the three D’s gives India the edge in a world of simmering competition.
“This is what makes us bullish about India, despite headwinds that roil markets overseas,” says Amit Jain, Chief Strategist – Global Asset Class at Ashika Group, in an interview with Moneycontrol. “In today’s world, only India can compete with China if the West continues to follow China+1 policy.”
With Federal Reserve’s hawkish commentary on the $ 120-billion monthly bond-buying programme, he sees further headwinds in the global stock market rally. “Hence, short-to-medium-term investors should be cautious and avert leveraged positions.”
Excerpts from the interview:
Do you think the bull run in the markets has a long way to go?
Yes, I do agree that India’s new bull run that began in March 2020 when the Nifty was close to 7,500, will sustain for a long time. At current levels, when the Nifty is at 18,200, we see some overheating in some sectors and stocks. But any correction is a buying opportunity in the markets.
In the post-pandemic world, the western economies are weighing on the policy of China+1 to reduce their dependence on China. The country manufactures 40 percent of the goods consumed around the world today. With this policy adopted by the West and higher tariffs levied by the Indian government on imports, we will see a revival in the local manufacturing sector which, in turn, will boost all sectors of the economy.
Most of the key corporate earnings have been announced. What’s your broad view on the earnings season?
Most large-cap and mid-cap companies have announced their second quarter results for FY2022. By now, 1,290 corporates have declared their results which, in my view, have been a mixed bag with some cost pressure on most sectors due to higher fuel and material costs. Out of the 1,290 corporate results, 864 corporates have seen growth in their quarter-on-quarter profits, while 427 have seen a decline in their profitability.
We have seen 32 percent on-year growth in the topline, while on-year profit has increased by 28 percent. The pace of profitability may further squeeze due to inflationary pressure in the global economy.
What are the key pockets where you can find value now and why?
We see value buying opportunity in select automobile, PSUs, banks and pharma stocks at current levels. If you observe most of these stocks, they are trading much below the Nifty and the broader market indices. In our view, this valuation gap will come down to an equilibrium in the medium to long term.
What does the current market cap to GDP ratio and PAT to GDP ratio indicate? Do you think the private CAPEX to pick up pace in the coming months?
India’s market cap-to-GDP is close to 120 percent and PAT-to-GDP ratio is close to 2.7 percent. Both these ratios are almost at a decade high. In a liquidity-driven global rally, these ratios, however, may not be the true indicators for any market crash.
We have seen this global rally in almost all asset classes due to the lower interest rate policy followed by most central banks in the post-COVID world. Generally, in a lower interest rate regime, we have always seen elevated levels for both the indicators.
Yes, I believe India’s new private capex cycle is on the verge of beginning.
How about the flood of public issues? What is your suggestion for the investors?
In 2021, we have seen an euphoria in the primary market as most IPOs are generating an absolute RoI (return on investment) of 40 percent to 100 percent on the listing day. In fact, FY2021-22 has seen record fundraising by Indian corporates. Indian Investors have now accepted the new-age business models as part of their investment portfolio. These new-age business models like Paytm, Zomato and Mobikwik are globally accepted, which focus on the market share for the first 10-15 years and then become market leaders to dictate terms and pricing of the products and services.
Key factors for subscribing to this new-age business model are their irreplaceable need for the product, current market share and their futuristic pricing power keeping the competition and regulatory framework of the country in mind.
Do you think the central banks’ action (including Federal Reserve) and inflation worries can cause consolidation in the Indian equity markets in the rest of FY22?
Yes, at current levels of Nifty, we see limited value picks, hence we believe, there may be both price correction and time correction in the broader markets. Also, with the Federal Reserve’s hawkish commentary on the $ 120-billion monthly bond-buying programme, we see further headwinds in the global stock market rally. Hence, short-to-medium-term investors should be cautious and avert leveraged positions.
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