Deepak Jasani, Head of Retail Research at HDFC Securities said there are some factors that will keep a cap on big upside in the market such as such as rate hikes and withdrawal of liquidity. “If the stream of negative triggers halt and reverse, we can see a new high before the Union Budget.”
Jasani has a broad-based domain expertise of more than sixteen years in capital markets.
He feels it is time to rebalance assets and equity portfolio. Till there is clarity on the global growth trajectory, defensive sectors may be the preferred ones. These include pharma, IT and FMCG.
Edited excerpts:
What is your reading on RBI policy?
The RBI’s latest monetary policy turned out to be more dovish-than-expected and came with no surprises. The Committee’s focus is clearly on supporting growth through sufficient liquidity and low interest rates despite street fears over inflation flare-up, global changes in interest rate policy and high commodity prices.
The RBI of course can fine tune the surplus liquidity to manage rates depending on the evolving situation. If the Omicron variant turns out to be benign, reverse repo rate may be hiked in February.
Which sectors are looking attractive right now?
We have been advising clients to rebalance their assets and equity portfolio. In the up move seen till October, investors had seen value of their equity portfolio rising and its weight rising disproportionately in their overall asset allocation. Some amount of profit booking would have helped bring the weights back to the originally planned levels. Also, within their equity portfolio, the number of scrips would typically rise in bullish periods and lower quality stocks would enter the portfolio to benefit out of perceived momentum. This also needs to be corrected.
For investors whose equity allocation is below the planned, the recent correction threw up a good chance to add up to equities. Till we have clarity on the global growth trajectory, defensive sectors may be the preferred ones. These include pharma, IT and FMCG. These sectors may not rise much from here but will help cushion the value of the portfolio in case we see another bout of selling post the completion of this bounce.
The government will present its annual Budget in February. Considering the current environment, what measures can we expect in the upcoming Budget?
It is a bit early to lay out detailed expectations for the forthcoming Budget. While a large part of reforms that are under the purview of the central government have already been carried out over the last few years, one may expect measures to boost growth – whether by way of boosting consumption by cutting duties or income taxes at the lower end, or upping healthcare and capex spend.
Measures to tax crypto gains may be introduced which can divert funds to equity markets. MSME sector that has been under pressure over the last 2 odd years may be provided reliefs in terms of softer loans, subsidies and incentives for employment etc. The Government will have to take care that these measures do not result in fiscal consolidation process getting derailed after higher than planned fiscal deficit in FY21 and FY22.
New IPOs have continued in the primary market despite weak listing of Paytm and muted response to Star Health IPO. What are the lessons for the companies that are looking to launch an IPO?
Companies should have business models that can be easily understood and financial projections thereof meaningfully made. Also the valuation of the IPO should take into account the uncertain and long period of the company reaching profitable stage. While the early investors have every right to expect a handsome return on their investments, the IPO investors should have enough meat to participate in terms of upside, whether immediate or over the medium term.
Also read – Data Patterns IPO opens on December 14, price band to be announced tomorrow
Excessive greediness on the part of the promoters or exiting investors can result in the IPO momentum getting derailed for quite some time. IPO investors on their part need to do some more due diligence and not just rely on the grey market premium. They should apply in the IPOs only if their risk appetite permits them to invest in an IPO that may take time to turn profitable and hence provide returns to them.
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Do you expect the market to return to record highs before Union Budget, and why?
The headwinds to the market seem to be many. New negative triggers keep cropping up every now and then. However the absence of lucrative alternative investment avenues and huge amount of liquidity means that dips in the markets get bought into. If the stream of negative triggers halt and reverse, we can see a new high before the Union Budget. However the known negatives of rate hikes, withdrawal of liquidity will keep a lid on large upsides and later one may see the dip not being bought into, resulting in a sustained downmove.
What are the key events to watch out for in 2022?
In India one will watch out for the Union Budget, interest rate trajectory, Covid variants spread, state election outcome and corporate results trend. Globally one would watch out for US-China tussle, China-Taiwan conflict, US Stock market and China Property market direction, tighter financial conditions, Covid variants, Crude oil supply and price scenario, Geopolitical issues in the middle east, Russia-Ukraine conflict etc.
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