DAILY VOICE | 4 key risks that the bulls have to defend in 2021, according to Tarun Birani of TBNG Capital Advisors

As for the markets, the increase in Budget expenditures and borrowings may take a toll on inflation but with a growth-oriented investment outlay this could play out well for the markets, says Birani.

February 24, 2021 / 07:24 AM IST

There is no "one-size-fits-all" concept in the financial world, and each investor has to weigh in his risk capacity, timeline, goals, and investible surplus before he decides the right choice of asset mix that suits his portfolio, Tarun Birani, Founder and CEO, TBNG Capital Advisors said in an interview with Moneycontrol’s Kshitij Anand.

Here are edited excerpts from that interview:

Q) What a ride it has been for the bulls – both Sensex and Nifty50 climbed crucial psychological levels after the Budget 2021. What is the way ahead for markets?

A) We are witnessing a Budget that has been drafted with a long-term view to put India on an accelerated growth path. Proposed higher expenditure on infrastructure, monetization of government assets and no increase in direct taxes will aid India’s growth story.

As for the markets, the increase in Budget expenditures and borrowings may take a toll on inflation but with a growth-oriented investment outlay this could play out well for the markets.

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The key here is for the government to ensure aggressive execution of the plans laid out in the Budget to guarantee continued growth.

We have witnessed stellar performance post-Budget, especially in equities, with a higher possibility of growth in the years ahead.

Additionally, privatization of a couple of PSU banks and an Insurance firm, increase in FDI limit to 74% for the insurance sector, and the proposal of a bad-bank structure to manage non-performing loans are some positive moves that will further strengthen the BFSI sector and the markets where financial services comprise of approximately 38.12% of the Nifty 50 weightage index.

Investors with long-term goals must stay invested keeping a keen eye on asset allocation in their portfolios.

Q) The underline assumption in the equity market is recovery in the economy. We are seeing some green shoots in the economy but do you see any risks to the ongoing rally both local and global?

A) While economic recovery does play a vital role in equity markets, but we cannot undermine a few other local factors that could affect the current rally.

1) Inflation is one such factor, as the economy further progresses it could lead to a rise in interest rates and further translate into equity outflow and inflow of bonds.

2) Low-interest rates and equity valuations are inversely proportional; add liquidity to the equation and that is the perfect recipe for gains in business activity. Alternatively, a rise in interest rates can have the opposite effect.

3) The effect of the vaccine on the new-variant of COVID19 plays an important role too. Any glitches there will mean containing the further spread of the virus will take longer than expected, further affecting improvement in the economic scenario, the snowball effect of which will be seen in rising inflation. This again will affect the equity markets.

4) From a global perspective the continuity in stimulus offered by Central Bank to strengthen and support the employment market along with the on-going soft interest rate strategy adds to the positive outlook towards equity.

 Q) The December earnings seasons cemented the fact that recovery is underway. Data suggests that over 70% of the Nifty companies that have reported earnings in Jan’21 have beaten estimates. Do you see more upgrades to the earnings cycle than downgrades which were the trend for the past few years?

A) With the recent release of Budget 2021 and looking at India’s potential for growth from a macroeconomic point of view, if the government can sustain development through diligent execution of the projected blueprint then we are likely to witness upgrades in earning cycles.

There may be some low periods and a spurt of growth along the way but it’s unlikely for markets to return to the trends of the past considering the reforms of the present.

Q) Common argument which is given is premium valuations are sustainable in light of economic and earnings upcycle. Earnings upgrades would support and drive valuations. Do you agree?

A) While the economic and earning up-cycle would definitely drive valuations, the current scenario we witnessed in the markets during the early COVID 19 days proves the financial market is not solely connected to economic reality at a ground level.

Various factors come into play. The current high valuations have a global connect with US market investors pulling out since the US treasury bills are offering negligible returns; a scenario witnessed with most developed countries.

As an emerging market, India is their next best choice for gains. While foreign money throngs the market, Indian investors too have hopped on the bandwagon to benefit from the upswing.

To ensure the momentum is maintained the government will have to ensure the Build-India centric Budget proposed are systematically and aggressively executed for better infrastructure and future growth.

Q) So where the opportunities in the market are which investors can grab post Budget 2021?

A) While the budget has been in the news for being an infra budget with the purpose of Build-India, we cannot discount the fact that primary investments have been pitched in the Healthcare sector with Rs. 64,180 crores to be invested in PM’s Atma Nirbhar Swasth Bharat Yojana over the next 6 years to develop the capacities of the current health care system; and a 5-year plan with Rs. 2,87,000 crores for the Jal Jeevan Mission along with Rs. 1,41,678 crores for the Swachch Bharat Swasth Bharat mission.

These proposals will mean better valuations for pharma, water, and water management companies.

In the Infra sector, massive plans for road infrastructure, National rail plan, and national infrastructure pipeline under which Rs.102lakh crores have been sanctioned will impact stocks of steel, cement, and other infrastructure companies.

In the energy sector, the Ujjwala scheme aims at covering 1 crore households with gas connections and the City Gas Distribution Network which benefits oil & gas companies and related product manufacturing companies.

We are bullish about the banking sector and its future growth prospects. From a financial outlook the budget’s Recapitalization of PSB’s, Asset Reconstruction Company move, increase in FDI in the insurance sector, and privatization of 2 PSU banks and an insurance firm will boost the BFSI sector and its valuations.

Q) Retail investors have consistently pulled out money from MF and January was no exception but SIPs continue. What does the trend suggests – does it mean that retail investors who can manage money are using the trading channels to route the money or there is larger trust issue?

A) The underperformance of mutual funds over the past 3 to 4 years could be one of the factors why investors are fleeing from mutual funds.

On the other hand, the rise in new Demat accounts by 1.06 crore proves that novice investors have taken the time out to learn the ropes of the market and are beginning to invest directly in stocks.

This could be the share of the market that mutual funds once enjoyed. While this is speculation I believe this trend could be majorly attributed to profit-booking by investors who had invested for the long haul and now are reaping the gains in this phenomenal Bull Run.

Q) How should investors invest money – go the SIP way or make a diversified portfolio of 15-20 stocks or a mix of both to take leverage of growth push seen in the economy?

A) There is no one size fits all concept in the financial world. Each investor has to weigh in his risk capacity, timeline, goals, and investible surplus before he decides the right choice of asset mix that suits his portfolio.

But, holding other factors constant I would suggest a healthy mix of both SIPs and well-diversified stocks along with other asset classes to maintain a balanced portfolio.

And with the current Bull Run, I would encourage investors to keep a keen eye on their asset allocation ratio to hedge their portfolios from specific asset class risks.

Q) Sensex climbed historic levels of 51000 while Nifty50 broke above 15000 – how do you chart your journey in markets and any instance which you would like to share with your readers when you got stuck but eventually got through?

A) I have observed investment returns v/s investor returns have a gap with an investment like Nifty given returns in double-digit but investor return has been in single-digit due to behaviour bias like a herd mentality.

Last year post covid many investors reacted negatively and sold equity in panic which turned out to be a big mistake and I realized the discipline of timely rebalancing.

Investors can rebalance by buying in a low market and selling in the high markets to ensure desired asset allocation as per risk tolerance is maintained is the only mantra of wealth creation.

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.
Kshitij Anand is the Editor Markets at Moneycontrol.

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