Yesha Shah is the Head of equity research at Samco Securities.
“Women should focus on the long term and invest in what they understand. Women should equip themselves with at least basic knowledge and engage financial advisors if need be. Instead of always focussing on getting the timing right, a staggered or SIP approach can work really well for women,” Yesha Shah, Head – Equity Research at Samco Securities said in an interview to Moneycontrol, on Mother’s day.
On the LIC IPO, she said even amid the surprise rate hikes by the RBI and the global meltdown in equity markets, the demand for LIC IPO, at least from the retail segment, has been quite resilient. From a valuation standpoint, “the downside for LIC from here seems limited as the IPO is attractively priced,” she said. Edited excerpts:
What is your message to the busy women on this Mother’s Day?
At the current juncture, there are multiple headwinds that equity markets are facing. And so, if women are new to the markets, they may lose the motivation to invest or refrain from investing due to their extreme risk aversion. But remember that the best opportunities are always found in crisis periods.
Over the long run, equity investing has indeed compounded wealth for many. So women should focus on the long term and invest in what they understand. Women should equip themselves with at least basic knowledge and engage financial advisors if need be. Instead of always focussing on getting the timing right, a staggered or SIP approach can work really well for women.
What is your take on corporate earnings that are announced so far? What do you expect from the current quarter on the basis of March quarter earnings?
Corporate earnings this season is going to be a mixed bag. So far, companies from IT, BFSI, FMCG and two-wheeler OEMs have largely reported their numbers and what we are observing is that there are more beats than misses.
Numbers from the banking space have been largely impressive. IT companies have had some misses but overall their outlook remains optimistic. IT is one sector that is better placed in an environment of high inflation and war. And post the correction, we have seen the risk-reward for some of the IT companies has again become favourable.
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Bleak rural demand and soaring input pressures have certainly squeezed margins of FMCG and two-wheeler OEMs, and it is expected that margin pressures will continue for a few quarters more. Having said this, management commentary from Hero as well as TVS was encouraging which propels hope for better quarters ahead.
Sectors such as oil and gas, which are likely to support Nifty earnings this quarter, are yet to release their earnings. There are bright chances that there may be more beats in these sectors, making Nifty earnings resilient.
Do you expect a slowdown in credit growth for banks if there are subsequent rate hikes by the RBI in the coming months? Is it time to bet on the banking & financial space?
There are a lot of variables which affect credit growth, and interest rate is only one of the many. Usually, a country is more capable of absorbing high interest rates in a period of growth as we have seen in 2003-08. During this period, despite rising repo rates, the credit growth was unbothered as the underlying demand was strong.
But the scenario we are seeing currently is different, as inflation this time is more supply-side driven. So, even though so far the credit growth has been very healthy, it is difficult to judge whether the demand we are seeing currently is sustainable. Also, there is uncertainty whether corporates will invest amid the rising cost of funds and uncertain demand scenario or end up delaying their capex plans. Having said this, working capital demand should continue to remain robust and can support credit growth in the short term at least.
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The LIC IPO has received a good response from investors. Do you think it will continue to get healthy responses till the last day? What is your view on the IPO?
Even amid the surprise rate hikes by the RBI and the global meltdown in equity markets, the demand for LIC’s IPO, at least from the retail segment, has been quite resilient. The government as well is making all the efforts to ensure that enough time is given to investors to subscribe to the issue. Given the current market conditions, I believe the government has taken a wise decision by reducing the IPO size and pricing the IPO at reasonable valuations.
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The demographical tailwinds, moderate penetration, and a massive protection gap will fuel the life insurance industry’s multi-decadal growth, and LIC is poised to benefit from it. While the fact that LIC has been losing market share and its lower-than-industry VNB (value of new business) margins do instil apprehension, LIC has indicated its plans to improve the two.
The long-term direction of LIC’s financial performance does hinge on the good execution of these plans. As I have already stated, from a valuation standpoint, the downside from here seems limited as the IPO is attractively priced. Taking into account all these factors, we have a subscribe rating on this IPO.
Considering the unstoppable macro issues and raising interest rates by central banks to combat rising inflation, what is your take on the markets now?
Yes, the markets are facing multiple headwinds and we are currently in a very dynamic situation. Macro variables are evolving very rapidly and it is very difficult to even predict how the situation will pan out – when and whether inflation will peak, will the war end soon, will the COVID outbreak in China spread to other countries. But one thing that is undeniable is that India’s domestic economy is quite resilient, and fundamentally, we are better placed than a lot of other economies.
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So the long-term outlook remains optimistic. Talking about the immediate short term, considering the steep fall in markets this week, I believe that there may be some more downside from here. Technically speaking, it is important that markets respect 16,000 levels, or else we may again see the Nifty re-testing the previous lows of around 15,600.
How do you approach the auto and realty segments, if there are subsequent rate hikes in the coming months?
Certainly, with rate hikes incoming, the lending rates are poised to go up. Furthermore, the realty companies will be hit by the double whammy of increased bank borrowing rates and inflationary pressure on the construction cost. This will mark the end of the era of record low-interest rates and low affordability for home buyers and consequently there may be some impact on residential demand.
Coming to the auto sector now, this sector is already suffering from ripple effects of the supply crunch issues, soaring fuel prices, and high commodity costs which have already led to continuous price hikes by auto companies.
The interest rate hike will now make vehicle financing expensive. This is likely to have a limited impact on passenger vehicles or commercial vehicle sales. However, it can surely act as a speed bump for two-wheelers, where the already gloomy rural demand can worsen, as inflation and interest rate hike make affordability a question for the common man in India.
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.
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