The market registered 22 percent returns in 2021. Amar Ambani, Senior President & Head of Institutional Equities at YES Securities says similar kind of returns are very likely in 2022. “I reckon Nifty will achieve a higher high than what we saw in 2021.”
Among the sectors, Yes Securities is betting on infrastructure where anything linked to construction will do well given the government’s focus on infra spends and housing sector look up, the market veteran explained. Ambani is responsible for driving all aspects of the institutional broking business in Yes Securities.
Nifty50 has seen earnings upgrades for five consecutive quarters, undoubtedly the best run in a decade. Ambani says sectors like auto, entertainment, tourism, and retail should see significant upgrades for FY23 as the supply and demand side of the equilibrium recalibrates in the months ahead.
The market has given 22 percent return in the current year 2021. Do you expect similar kind of returns in the year 2022 given the rising expectations for better economic and earnings growth?
I would say it is very likely. The Nifty should rise above the 16,500 levels to repeat the returns of 2022. In fact, I reckon Nifty will achieve a higher high than what we saw in 2021. On the earnings side, I see a pick-up in the offing even if the economy chugs along at the current pace and not move up to the next level immediately; especially the earnings of the organized space.
We can expect some amount of supply normalization to happen, and the disruption that posed a hurdle to the progression of a few sectors should fade in the coming time. A continued growth in consumption will augur well for the economy.
On the inflation front, many key sectors like auto, paints, and FMCG have demonstrated the propensity and intent to take further price hikes over and above what they have already taken. The government will continue its spending on infrastructure and capex and private investments will continue in select sectors.
The Union Budget, the much awaited event, is expected to take place on February 1. What are your broad expectations from the Union Budget FY23?
All said and done, a budget is a statement of account. We as investors tend to expect too much out of it and read too much into it. Throughout the year, the government has does a lot for the economy in proactive and reactive fashion, which we can expect to continue going forward.
For instance, the corporate tax reduction and PLI (production-linked incentive) schemes were announced outside the budget. The much talked about electricity reforms, as also the smart metering initiative are likely to be non-budget measures. Same holds true for the pre-emptive RBI gestures which have been discernibly positive front-foot measures.
Having said that, the budget items I would be focused on would include the government intent to continue with infra spends, and the commitment around fiscal deficit target.
As long as there are no devils from the capital market perspective, the budget should not give us any cause for concern. Last year’s budget, contrary to what was largely expected, proved to be a good one for the markets.
Do you expect further corporate earnings upgrade in coming quarters and why? What are those sectors that will drive upgrade in Nifty EPS in 2022?
Nifty50 has seen earnings upgrades for five consecutive quarters, undoubtedly the best run in a decade. Commodities, IT and Energy stocks have reaped the biggest upgrades in the last few quarters. However, we expect some moderation in commodity-related stock earnings going forward.
The broader basket earnings will continue to see upgrades amid improving aggregate demand, strengthening macroeconomic environment and peaking out signs of commodity-induced inflation. Sectors like auto, entertainment, tourism, retail should see significant upgrades for FY23 as the supply and demand side of the equilibrium recalibrates in the months ahead.
The broader markets – Nifty Midcap 100 and Smallcap 100 indices rallied 50 percent and 60 percent respectively, so far in 2021. Do you expect such outperformance (compared to benchmarks) to continue in 2022 as well?
The span between 2018 and 2020 was consolidation time for midcaps and smallcaps. Towards the end of 2020, we saw fresh upsides gaining ground, which I reckon will continue for the next three to four years.
In the listed space, we have many quality names and a few niche sub-segment leaders with good post-listing history, and they have been proactively talking to analysts, chalking-out growth plans, and giving well-articulated guidance in earmarked areas.
These midcap stocks should continue to outperform as a basket. Of course, the junk stocks in the broader markets will continue to remain junk and investors should exercise prudence and caution in making the right picks.
What are the key events to watch out for (domestic as well as global) in the coming year 2022?
In the near term, the markets would be interested in India’s fiscal development, Union Budget provisions and promises, and the implementation of reforms already announced, besides the outcome of assembly elections particularly in Uttar Pradesh.
On the global front, the market will keep an eye on the pace of monetary liquidity normalization.
What are the risk (global and domestic) and concerns that can spoil the market momentum in 2022? Do you think FII outflow is a major concern for India in the current environment?
The factors that are invariably cited as risks include the re-emergence of Covid through new mutations, besides the likelihood of rising inflation and taper tantrums. In my opinion, Covid won’t be a show stopper, being a known evil and given more actionable knowledge of emerging variants through predictive genomics as also the satisfactory pace of the vaccination drive.
Inflation and taper tantrums would have some near-term impact, but they won’t disturb the structural fabric of equities. The medium-term risk that I would be wary of is that of India’s likely K-shaped recovery where the good performance of certain sectors is coming at the cost of the damage to the unorganized space. This dent into the MSME space is clearly a peril.
In the long term, the concern is clearly the growing Japanification of the world, where for every one dollar invested is fetching less than a dollar growth. The falling velocity of money is indeed a worrisome factor as at some point, the consequences for the world could be lethal.
Have you spotted any themes that investors have to add in their portfolio for strong returns?
One is the space of affordable real estate where we see the start of a cyclical uptrend in budget homes. The balance sheets of most developers are now discernibly strong and they have learnt from past blunders like holding on to inventory. The prices are at a level now where we are seeing the fastest absorption of inventory.
Another theme we are betting on is infrastructure where anything linked to construction will do well given the government’s focus on infra spends and housing sector look up.
Linked to both these sectors is the building material space which we are bullish on. This includes players into home improvement, pipes, paints, cement, electricals, cables and wires, and the like. Also, midcaps in general would continue to do well for the next three to four years.
Do you think FII outflow is a major concern for India in the current environment?
FIIs have been net sellers in the secondary markets, with second-highest outflow in a decade’s span. And yet we have seen the broader market (BSE 200) delivering a handsome 30 percent return. This is quite an antithesis to the established wisdom that cites a strong positive correlation between Indian equity returns and FII inflows.
FII ownership of Indian equities has in fact come down over the past few years and does not necessarily influence the broader trajectory of the markets. The emergence and rise of other institutional entities have widened the ownership of the basket.
So FII outflow should not bother us much, especially given the fact that FII outflows have historically not persisted beyond a year’s time. They are known to come back with big bang purchases on the onset of the succeeding calendar year.
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