Anshu Kapoor, Head of Investment Management at Edelweiss Wealth Management, says markets are driven by earnings, liquidity and sentiment. The December quarter numbers have been positive and have surprised analysts across sectors.
But, he is not keen on travel and hospitality segments and favours staying away from sectors that continue to bear the brunt of the coronavirus pandemic.
In an interview to Moneycontrol's Sunil Shankar Matkar, Kapoor says banks have raised more than $15 billion in the last six months and are well capitalised. He expects credit cycle to revive, led by manufacturing capex. Edited excerpts:
Q: What should be investors' strategy after the Budget 2021 and the RBI’s monetary policy? Should they reshuffle the portfolio?
The reshuffling is necessary if investors feel their portfolios are not allocated efficiently as per their investment objectives. The Budget and RBI policy are constructive and supportive of equities. Investors who were underweight on equities should consider adding exposure.
In fixed income, we advise investors to lock-in yields in high quality fixed deposits and AAA bonds.
Q: Given that the market has more than doubled from March 2020 lows, should one reduce the exposure to equity and increase it in other asset classes?
If you are fully allocated to equities, consider finding a way to hedge your portfolio. If you are under-allocated, please gradually add equities exposure–even at these levels.
Markets are driven by earnings, liquidity and sentiment. We are now seeing earnings come back and surprise analysts across sectors. Actively review and manage your portfolio—lock-in returns at a frequent interval. We are also positive on residential real estate as an asset class.
Q: After the Budget and the December quarter earnings, which are the sectors one should add to the portfolio?
We are positive on IT services, auto, banking and financial services and consumer discretionary.
Q: Which sectors should be avoided?
Avoid sectors which continue to be adversely impacted by the pandemic—travel, hospitality.
Q: What is your reading of the December quarter earnings? Do you expect earnings to continue improving?
The December quarter earnings have been positive and largely surprised analysts. Revenue growth for about 275 companies we have analysed is around 10 percent, a six-quarter high. PAT growth for these companies is at a nine-quarter high.
Q: Do you think the government will meet targets set in the Budget, including those for divestment, infrastructure spending, healthcare, bad loan bank and many more?
We have begun well. Hopefully, all factors will align this year to help the government come close to, if not exceed its targets.
Q: Do you think the Budget gave a boost to the banking & financial sector—the Bank Nifty has rallied 17 percent in just a week? Do you think the creation of the so-called bad bank will solve the NPA problem?
Banks have raised over $15 billion in the last six months and are well capitalised. NPAs as a result of the pandemic have turned out to be not as severe as feared. Banks have provisioned adequately for potential NPAs.
We expect the credit cycle to revive, led by manufacturing capex. Factors that will drive this are 1) Investments as a percentage of GDP are at all-time low of 25 percent, 2) India Inc has significantly de-leveraged: debt/ equity ratio is at an all-time low of 0.8, 3) the cost of capital is down—G-Sec is at 10 year low.
We also expect consumer credit demand to revive, led by stabilisation, growth of incomes, home loan rates at a 10-year low, confidence in buyers after RERA implementation, and revival of residential real estate sales—the number of units sold per quarter are around 60,000 (close to pre-COVID levels of 70,000-85,000 per quarter).Disclaimer: The views and investment tips expressed by 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.