Quarter 4 result season is around the corner and, we believe there will be shrinkage in margins due to rising input cost caused by rising geopolitical tension between Russia and Ukraine.
Sunil Shankar Matkar
April 02, 2022 / 08:46 AM IST
Mohit Nigam is the Head – PMS at Hem Securities
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“We believe ITC can be picked up by long-term investors despite the fact that it has run up quite a bit,” says Mohit Nigam, Head of PMS at Hem Securities. ITC shares gained 17 percent in March, the most in sixteen months.
The company is relatively insulated as it has other verticals such as hotels and cigarettes, which cushion the blow to its FMCG segment from the sharp rise in input costs, he says.
In case of Reliance Industries, which hit Rs 18 lakh crore in market capitalisation, he says historically, the stock has managed to deliver returns at the CAGR of 30 percent since FY18 and is expected to continue the similar upward journey in FY23 too.
FY22 ended on a strong note with around 20 percent gains. Do you think considering the current headwinds including commodity inflation and earnings worries, the market can deliver similar kind of returns in FY23?
Markets are bound to rise, the previous peaks will be surpassed by higher highs. Commodity inflation, geopolitical crisis, earnings headwinds are all temporary, one should look at the broader picture. The ongoing reforms in the nation, imposition of technology, promotion of Made in India PLI (production-linked incentive) scheme, increase in exports, China plus 1 strategy and other incentives are some of the key factors that will drive the markets ahead.
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Being a democratic nation, India is already in a sweet spot amidst the ongoing war situation. However, the degree and time in which these reforms and policies will be successful will decide the time for the market to bounce again. All in all India is working towards improving the environment for investors which will be a key driver for its growth strategy.
Monetary Policy Committee will hold its first policy meet for FY23. Do you think the Reserve Bank of India and governor commentary will give a hint about rate hikes given the expected inflation concerns or will the RBI prefer to stay behind the curve and focus on growth? Do you expect any rate hikes in FY23?
In this time of conflict, the central bank’s monetary policy meeting in April will encounter a number of obstacles, including rising prices and the likelihood of a GDP slowdown. We expected a rate hike at the policy meeting, but now expect it to be postponed due to growing geopolitical worries over Russia’s invasion of Ukraine and its impact on commodity prices.
The RBI has remained at a stalemate on interest rates for a long time, and at its most recent policy meeting, it decided against a widely expected rate hike to spur growth. Governor Shaktikanta Das is in charge of keeping inflation under control but also protecting the country’s still-fragile economy. As a result, rate rises by the RBI are more likely to be delayed until later this year.
Also read – GST collections hit record high of Rs 1.42 lakh crore in March
ITC has run up a lot in the last one month. What are the major reasons behind the same and what is your call on the stock? Is it looking expensive now?
Shares of ITC surged nearly 17 percent in March, the most in sixteen months, even as its peers dropped on fears of margin pressure due to input cost inflation. The scrip has been going up when the entire market was coming down due to various reasons. Firstly, with the rise in tobacco volumes and the excise duty which has been kept unchanged in the Union Budget for FY23 has done well for the steady rise in volumes of both cigarettes and tobacco. Secondly, the hotels business is definitely showing a positive momentum with the lifting of most Covid restrictions post the third-wave that has led to an increase in mobility and therefore augurs well for ITC’s hotel business.
Apart from this, it does have a paper business which is likely to do well in the backdrop of tight paper supplies in the domestic market and a possible surge in paper exports. So all this does point well for ITC and we believe it can be picked up by long-term investors despite the fact that it has run up quite a bit. The company is relatively insulated as it has other verticals such as hotels and cigarettes, which cushion the blow to its FMCG segment from the sharp rise in input costs.
Also read – Air India takes baby steps in improving performance after takeover by Tatas, hard work lies ahead
If you have Rs 10 lakh and you want to split into asset classes including equity, gold, fixed income etc. How do you go about it, as we just entered into FY23? Also what is your allocation to largecap, midcap and smallcap in the equity space?
We all know that asset allocation is the key in any portfolio. An investor can allocate its portfolio in debt, equity, gold, real estate etc. based on the investor’s risk-return profile, horizon and investment objective. Equity leads to growth in your wealth over the long term, and debt lends stability in the portfolio as well as growth in wealth i.e. investors who prefer relatively higher returns are heavy on equity and those who prefer relative stability are more into debt investments.
An investor can allocate its fund in the pattern: 65 percent to equity, 20 percent to debt and 15 percent to gold. FY23 can be a good year for equities and investors can allocate their major chunks in equities and among equities approximately 50 percent should be invested in Large cap, 30 percent should be in Mid Cap and remaining should be in small cap for multibagger returns.
Also read – How to plan your income tax smartly in the new financial year
Reliance Industries hit Rs 18 lakh crore of market cap now and gained 30 percent, if I am correct, in FY22. How do you approach the stock and will it give similar kind of returns by end of FY23 too?
Reliance Industries, the largest Indian company by market capitalisation, has given decent correction after hitting Rs 18 lakh crore mark. The stock managed to end the FY22 near life highs after a strong breakout in the month of March. The stock seems to be getting ready for the next rally as fundamentally the company has never been stronger.
After achieving the net debt mark ahead of the targeted timeline, the company is now focusing on reducing the funding cost and has raised the debt just before interest rates started rising globally primarily to refinance high-cost debt. The oil-to-retail conglomerate is expected to have an eventful FY23 with the upcoming 5G auction and is expected to perform well across all the business segments.
Historically, the stock has managed to deliver returns at the CAGR of 30 percent since FY18 and is expected to continue the similar upward journey in FY23 too.
Given the commodities prices are rising, and inflation is a big headwind, what is the impact on overall corporate earnings and also will the impact last for two or more quarters?
Quarter 4 result season is around the corner and, we believe there will be shrinkage in margins due to rising input cost caused by rising geopolitical tension between Russia and Ukraine. Petrol and diesel prices are continuously hiked thus, increasing logistics cost. Important raw materials like aluminium and copper have risen by 26 percent and 7 percent respectively in the last three months. Whereas, natural gas rose by 47 percent in the last three months. Going forward, we believe there might be some relief in input cost and some improvement in corporate earnings can be witnessed from Q1FY23.
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