BFSI to do well for next 3-5 years on economic growth outlook, under-penetration of financial services

We celebrate Diwali in many manners and one of the ways which Investors and traders celebrate is by trading during this special ‘Muhurat’ period. The idea behind this time period is to begin a new trading season with renewed and positive energies.

The practice has been transpiring the 50’s with BSE and then in the 90’s when NSE commenced business. For the current year, as per trading circular, 24th October’22 is a trading holiday with Muhurat trading session in equities to commence from 6.15pm to 7.15pm. This one hour window will be open to traders to put in their orders on this auspicious holiday.

One should consider this period just like any other, an opportunity to invest in the stock market, having a long term view.

Looking at the current year, we witnessed a rollercoaster of events, from the Russia Ukraine conflict to record high inflation numbers across the globe. Major Indices, both domestically and globally are witnessing high level of volatility. Domestic indices, Nifty was down by -3.7 percent. Global economies are taking aggressive monetary policy stance as means to combat inflation, causing further volatility and making the USD strengthen to almost a two decade high.

Post strong August’22 inflows, FII again turned negative in September’22 to the tune of around $903 million; while DII’s continued to maintain strong fund inflow and were net positive to the tune of $1.7 billion. FIIs turned net sellers again in the month of September primarily because of surge in US 10-year yields to ~3.9 percent levels and dollar index hitting fresh 20-year highs. The FIIs flows are expected to continue to attract short term volatility owing to the pace of rate hikes by major central banks.

Inflation in India is well outside the RBI’s comfort zone and core inflation again breached the 6 percent mark. Geo-political and weather-related upside risks to near-term inflation continue, as also the unfavourable base effect for food. Yet, the recent softening of global commodity prices, easing of some global supply-chain problems and the absence of demand pressures seem to indicate retail inflation is past the peak. With an unfavourable base for food products, especially vegetables and cereals, we do not expect a sharp softening until Mar’23.

With regards to Equity markets, there are three major factors which drives it – fundamentals, both macro and corporate, liquidity flow towards the equity market and equity valuations. In terms of fundamentals and valuations, India is better placed then most major economies. The domestic flow towards the equity market is also supportive of a buoyant equity market. However, the global risks and the consequent foreign portfolio outflow from Indian equity market.

At this current juncture, I believe that investors should look at stock specific opportunities available across market capitalization and investors should stick to high quality companies with good earnings visibility irrespective if it from mid and small caps. With improving consumer sentiments; easing raw materials prices and green shots of economic recovery visible – we except top line earnings growth to likely be in higher double digits. Banking & Financials / Autos and Industrial Goods are expected to perform really well in Q2 FY-23.

Strong credit growth which is at decadal high of ~ 16 percent will boost the second quarter earnings for banking sector and we except asset quality to improve further due to reduction in fresh slippages. We except NII and loan growth for all major banks to be quite strong and deliver a high teen growth on year on year basis. We except BFSI sector to do really well for the next 3 to 5 years due to India’s promising economic growth outlook and under penetration of financial services in the country.

The consistent and less risky way to make significant portfolio return is, therefore, to remain invested in the market and not to get unnerved by the possible or actual corrections in the equity market. I would always advocate one to have a focused approach and look at your risk profile and invest basis your asset allocation strategy for long term wealth creation.

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