Kanika Agarrwal, Co-Founder of Upside AI
The Union Budget is going to be presented by Finance Minister on February 1. Kanika Agarrwal, Co-founder at Upside AI says given government finances today, they don’t expect any broad tax cuts. However, “There could be pockets of sops for farmers given the tumultuous relationship the government has had with the farm lobby last year.”
Apart from budget, UP elections will be a key event to watch out for in coming months. “Markets like stability and any surprise in election results or policy changes are a risk to market sentiment,” says Kanika who has over 11 years of experience in finance and investing.
Omicron cases have been rising in India and globally. Do you still count it as a major risk for the global markets? What are the other risk factors?
At any point, one should assume that all publicly available information has been priced in to the markets. While we are reporting highest number of COVID-19 daily cases, markets are not plunging. This is because data suggests that while Omicron is more contagious, it is less lethal. Hence, governments are reluctant to enforce lockdowns again. The risk is in any change to this assumption about Omicron – if it becomes as lethal, or any adverse vaccine data, etc. will add to volatility in the market.
Apart from COVID, we are all watching central banks around the world closely, on their reaction to inflation. The Fed’s December meeting already indicated they are increasingly uncomfortable with inflation data and this caused US markets to weaken. Therefore, there is risk of sooner/ larger than expected hikes in interest rates sucking out liquidity from markets.
Lastly, of course, UP elections and the budget are coming up. Markets like stability and any surprise election results or policy changes are a risk to market sentiment.
What is your advice to investors who are new to the stock market in 2022?
If 2022 is your first year, do not be swayed by 2020-21 market exuberance. The past is no indicator of future performance. Follow prudent asset allocation – diversify across asset classes like equity, debt, gold, etc. Further, even within equity, make sure you are invested in different market caps, themes, etc. With 2022 volatility in mind, we recently launched a product to make better sense of macro signals and move asset allocation between equity, debt and gold.
What are the sectors that look attractive for value buying now and why?
We are invested in infra and infra-adjacent sectors currently – logistics, cement, metals, power. We also own some pharma and BFSI which could be “value” given their underperformance to the market last year.
After a more than 20 percent rally in 2021, what will the market look like in 2022?
There is no way to tell how 2022 will do based on 2021. For example, looking at US stock market data since 1928, what was the average return of the next year, if the previous year does 10 percent+, 20 percent+ or 30 percent+? The answer is 10.8 percent, 9.7 percent and 9.9 percent respectively.
Therefore, our focus is not on trying to predict the future, but to be nimble and adapt to changing market conditions. In the first half of 2020, our biggest sector was chemicals; in 2021, it was metals. We will continue to adapt to markets but will not be looking to predict.
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The other key event in the near term would be the Union Budget 2022. Will it be populist, considering state elections ahead? What are the focus areas?
Given government finances today, we don’t expect any broad tax cuts. However, there could be pockets of sops; for example, for farmers given the tumultuous relationship the government has had with the farm lobby last year.
Similarly, healthcare may be of focus given the impact of COVID waves on our health infrastructure.
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Lastly, the government has been vocal and aggressive about attracting more investments in manufacturing – there could be sops for electrical vehicles (EVs), renewables, semiconductors, etc.
Analysts expect LIC to launch its IPO in the first quarter of FY22-23. How much amount do you expect the government to raise through the public offering? Do you think the government will focus more on monetization in the upcoming budget?
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The government has been pretty clear about its disinvestment agenda for years. Key always remains actual execution and monetization.
It is expected that the government could sell 5-10 percent of LIC valuing it around Rs 10 trillion. Given the size of the LIC IPO, it could prompt more market friendly measures to ensure increased liquidity in the markets.
Experts feel that 2022 is going to be much better than 2021 for the primary markets and the fundraising could go as high as Rs 2 lakh crore including LIC IPO. Do you concur with this view?
The most exciting theme in the markets last year was Indian startups coming of age with IPOs of Zomato, Nykaa and PayTM. This trend is expected to continue in 2022 as long as markets and liquidity remain supportive. There are many startups like Byjus, Ola, Delhivery, OYO, Pharmeasy looking to go public next year.
SEBI has done a great job working with the ecosystem to make sure our Indian companies list in India instead of abroad. One thing to be cognizant of is if there is enough liquidity to absorb these IPOs and what happens to the secondary markets when primary markets absorb this cash.
However, those are short term issues. Given the breadth of startups going public, Indian markets will soon include more of our new-age economy and give retail investors a chance to participate in the story of new India. 2022 looks to be an exciting year for the markets.
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