Yesha Shah is the Head of equity research at Samco Securities.
After initial public offerings of more than Rs 1.3 lakh crore in 2021, the pipeline for 2022 looks solid. Companies are expected to come out with offers for about Rs 45,000 crore collectively, says Yesha Shah, head of equity research at Samco Securities. Additionally, the mammoth Life Insurance Corporation of India IPO is expected to help 2022 overshoot 2021 in terms of fundraising, says Shah, who has more than a decade of experience in the capital markets.
On earnings, the IT sector is expected to continue its healthy growth momentum and the banking sector can surprise on the positive side, while industrial companies are likely to deliver strong earnings, Shah told Moneycontrol in an interview. Edited excerpts:
What are your earnings expectations and do you expect earnings upgrades to continue?
As the structural appeal of the Indian economy continues to be promising, we expect the earnings momentum seen in CY21 to likely spill over in CY22, albeit at a comparatively slower pace. For the December quarter, the overall performance is expected to be strong due to the faster economic recovery and elevated demand witnessed. However, profit margins could be constrained for some sectors as near-term headwinds such as inflation, component shortages and supply-side disruptions continued to persist.
Which sectors will report strong earnings growth and weak results growth in the quarter ended December 2021?
IT is expected to continue its healthy growth momentum as the demand outlook remains robust. Margin outlook and revenue guidance will be the key monitorables in the sector. The banking sector can definitely surprise on the positive side. Recent trends such as growing deposits, adequate provisioning and improving asset quality accompanied by strong lending operations suggest that improvement in earnings in this sector is on the cards.
The real estate sector, one of the best comeback stories of 2021, is expected to continue its onward march. Considering the festive season gone by and the increasing market share of the organised sector, reputed developers could post a strong quarterly result. Industrial stocks are likely to deliver strong earnings on the back of capex-led growth acceleration, recovery in domestic demand and improving order inflows.
On the flipside, we expect the FMCG sector’s performance to be muted. Higher input costs and the inability to fully pass on inflationary costs could underpin profitability. Subdued rural demand could hamper the top line of these players. Further, chemicals and pharma are likely to post moderate performance.
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Most experts feel 2022 is expected to be much better than 2021 for the primary market segment and fundraising could be about Rs 2 lakh crore including that of Life Insurance Corporation. Do you feel so? What are the companies planning IPOs in 2022?
The IPO pipeline for 2022 looks solid with more than 30 approved IPOs already approved and many more awaiting approvals. As 2021 proved the market’s acceptance of new-age businesses, plenty more among India’s biggest startups like Flipkart, Ola, Pharmeasy and Delhivery are gearing up for their D-Street debuts. Apart from these, Adani Wilmar, Emcure Pharmaceuticals and Vedant Fashions, among others, are expected to float their primary offerings.
In fact, in this quarter itself, over 20 companies are expected to tap the markets to raise about Rs 45,000 crore collectively. Additionally, as LIC goes public with its mammoth issue size, 2022 can potentially overshoot 2021 in terms of fundraising. If the robust momentum in the primary markets continues, 2022 can be a record-breaking year for IPOs.
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Do you think the recent correction has created a great opportunity for investors who missed the bus in the last one-way rally? What sectors look attractive for value buying now?
Despite the recent correction, the Nifty 50’s forward P/E still indicates rich valuations and more than 70 percent of the top 500 stocks are trading above their five-year average price-to-book ratio. However, certain pockets of the markets still have room for upside and provide investment opportunities. The banking sector’s recent underperformance, primarily on account of drawdowns by FIIs combined with improving fundamental metrics, put it in a sweet spot for investors seeking value.
The housing sector is on the cusp of an upcycle and looks attractive as well. Certain companies that finance housing developers and homebuyers also have valuation comfort and can see some traction going ahead. Ahead of the Union Budget 2022, infrastructure, defence and industrial companies should be kept on the radar as they can potentially add value to the investor’s portfolio given their modest valuations.
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After a more than 20 percent rally in 2021, how will the market look in 2022?
2021 has been a remarkable year for our markets, fuelled by ample liquidity, a healthy economic recovery, and a pick-up in corporate profits. As we enter the New Year with yet another variant of Covid-19 raising concerns, we believe that the markets will continue to perform well, although the road ahead could be bumpy. Certain correlations can be drawn to 2015-16 (to some extent), when there were corrections in the middle of the larger bull cycle, with talk of interest rate hikes doing the rounds.
Despite this, the markets continued to rise. When compared to 2015-16, the current economic narrative is quite strong. India has multiple growth levers in place to fuel healthy returns this year as well. However, the rally in 2022 might not be as swift as the last year. Now on, alpha will be generated through superior stock selection and therefore a bottom-up approach would be ideal to play 2022.
(Alpha is a technical analysis ratio that depicts the absolute value at which the performance of a stock deviates from a benchmark index value.)
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