Daily Voice | Viraj Mehta of Equirus bets on these 4 themes for 2022

Market Outlook

Viraj Mehta, Managing Director – PMS at Equirus learnt various key lessons from the passing year 2021. Amongst them, he advises two key lessons for new-age investors for 2022 – one is the ability to stay invested and second is the ability to stay invested in quality names.

On the themes for 2022 or coming years, he says with the government’s push towards infrastructure, the incentive schemes for the manufacturing sector, and lower cost of capital, they believe capex will be a big play in coming years. “We like capital goods space which should be a big beneficiary of the impending capex cycle.”

Viraj Mehta has more than 12 years of experience in the investment sector.

What are the great lessons you learnt from 2021. On that experience, what would be your advice to new-age investors for 2022?

Ever since the pandemic outbreak, approximately the last two years have been a valuable learning experience for us. The times have been challenging but equally filled with opportunities, growth, and pushing out of the comfort zone to survive and thrive in the market.

There are various key lessons that I learnt and that I would like to highlight and pass on to the new-age investors in 2022. The first and foremost is the ability to stay invested/deploy funds as well as improve the quality of portfolio during the Covid induced correction in early 2020 was indeed priceless. That one decision to not panic at that time has reaped us rich dividends.

Secondly, the ability to stay invested in quality names where we had conviction while the markets were running amok has also helped us garner good returns with minimal churn. We realized and in fact got our lesson that having conviction while the market is in a free fall or a sharp up move, is of prime importance. However, this conviction is not easily available and comes with thorough research. This is a timeless lesson that has been reinforced during the past couple of years.

At the age of 25-30 with a balance of Rs 10 lakh, where should one invest in 2022 or how should one allot money in his/her portfolio at the start of 2022 to get healthy returns?

For a person starting their investment journey, it is very important to realize that investing in any asset class is not easy. If one doesn’t have the required expertise or time, it is important to find a competent advisor whose incentives are aligned with one’s goals. Having said this, our preferred asset class is equities, if one has a horizon of at least 5 years.

The economic setup for India as a country looks very promising. There is a high probability that our GDP (gross domestic product) grows at a high single-digit or even double digits for the next decade. If this happens, the equities will outperform every other asset class. This is not to say that the ride with be smooth. There will be sharp corrections and/or sideways movement over the years. But if one has long enough horizons, one should be able to ride out or even benefit from the volatility. I would stick out my neck and say that a young person starting out should has a very high allocation to equities.

The market corrected more than 10 percent from its record high in the last two months. Do you think there could be more correction in the coming months given the Omicron worries, expected rate hikes, and liquidity tightening? Also is there any possibility of double-digit returns in 2022 in comparison with 2021 (up to over 18 percent so far)?

It is very difficult to predict market movements in the short run. And as you mentioned, there are multiple variables affecting the market at any given point and they can play a big role in the near term. We are in a structural bull market and corrections are an integral part of any bull market. This current correction also should be looked at in that light. It is almost impossible to predict the intensity and duration of any correction or an up move. We do not accord much weightage to market movements while taking investment decisions. It is purely based on the fundamentals of each company and its valuations. Any corrections like this one are a buying opportunity.

The market has seen the first biggest correction since the beginning of the bull-run last year. Have you spotted any themes that one has to consider for investing in the current free-fall, for 2022, and why?

With the Government’s push towards infrastructure, the incentive schemes for the manufacturing sector, and lower cost of capital, we believe capex will be a big play in coming years. We like capital goods space which should be a big beneficiary of the impending capex cycle.

Additionally, we like hospitality space which is dependent on discretionary spends. As the populace gets more confident, the demand for travel and tourism should improve leading to revenue growth as well as operating leverage showing up in the numbers leading to earnings growth as well as valuation rerating. These are the themes for the times ahead. Reiterating the fact that I stated above, this correction is an opportunity to add on to our positions at better prices.

Now more than a month left for the Union Budget presentation. Do you think it would be a big bang budget and what would be the focus areas? Also are there any populist measures given the state’s elections going ahead?

Union budgets are important; however, they should be looked at in the right context. One should not accord undue importance to the budget exercise. We have seen the central government has been taking a lot of steps outside the budget as well. Having said this, we hope that the government maintains a consistent tax regime and continues to follow through on the infrastructure and manufacturing push.

What are the biggest risks or concerns (global and domestic) that every investor has to consider while investing in equities in the year 2022?

There will always be some or the other concern in the market like new variants, rate hikes, elections, budgets, etc. However, with the run-up in the markets, the risks are more behavioural in nature. It is easy to get carried away and lower the quality and valuation benchmarks. It is at times like these, the investors should keep their guards up. There are spaces in the market which are in the speculative territory, especially the primary markets, and hence, should be avoided. If one is willing to look, there are plenty of opportunities in the areas that are being ignored by participants at large, which is where we like to operate.

Given the rising expectations for three rate hikes in the US in 2022 and liquidity tightening to control inflation, do you expect the RBI to think of a rate hike in the second half of 2022 or will the RBI continue to prioritize growth?

It is almost impossible to predict what RBI will do. The macro-variables are very dynamic in nature and we must keep faith that RBI will act appropriately depending on the evolving situation. Hence, predicting what will happen is not possible and feasible. What we can do is just wait and watch and see how the situation pans out.

Disclaimer: The views and investment tips expressed by investment 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.