DAILY VOICE | Amar Ambani of YES Securities sees Sensex at 1,25,000 by 2025; says outlook for next 4 years extremely positive

Q: After dovish Fed commentary, foreign investors returned to India last week. Considering the US economic data and Fed action going ahead, do you think the FII flow will continue in the rest of financial year 2021-22?

The US economy has reclaimed pre-Covid levels, helped by strong consumer spends. The lost jobs have also been reclaimed to a large extent. However, the economic traction now seems to be slowing down, going by the recent frequency indicators. US inflation expectations remain high given the sticky core price pressure. The real yields have dropped deep into negative territory.

The US Fed is looking to cautiously taper asset purchases beginning from next year, with the reduction probably spanning over a year and a half. A calibrated and very gradual curtailment in the asset purchase programme will barely impact yields. Given the liquidity of more than $1.2 trillion parked in US reverse repo window, following the shortage of new Treasury paper supply, we reckon yields are going to remain benign for quite some time. On interest rate projections, we sense that Fed will sit tight till 2023. Fed's dot plot also conveys no intention to move interest rates for the next 18 months.

Consequently, we expect FIIs flows to favour Indian equities over next 3 years. While the near term is trickier to predict, history shows us that FIIs have been net buyers of Indian equities in last two decades, barring a couple of years. So, we can expect the flows to continue unabated in FY22 and beyond.

Q: Considering the market are at record high levels, do you think there is room for upside from hereon and touch 20,000 mark on the Nifty50 by FY22-end?

When we predicted Nifty to cross 18,000 in the current calendar year, it looked like a long stretch of imagination only a few months ago, but it seems well on the cards now. I wouldn't rule out the possibility of Nifty touching 19,000-20,000 either, but the shorter the time frame, the more uncertain the prediction. What I can tell you with conviction is that the outlook for next four years is extremely positive. In fact, I envision the Sensex hitting 125,000 by December of 2025, given the slew of conducive factors, including a pronounced business shift from the unorganised sector to the organised space, marked acceleration in the digital super cycle, sustained margins from the pandemic-enforced prudent cost management, all benefiting the listed space. The government focus on infra, PLI (Production-Linked incentive) schemes, China+1 sentiment will immensely help India, even as the cost of capital stays benign and inches up very gradually.

On the near-term outlook, we see inherent strength in many large caps like Reliance Industries, ICICI, IT Services, Bharti and the like. The market is remarkably buoyant, given the demand from all investor segments – DIIs, HNIs, FIIs and Retail alike.

Q: Is it the time to turn cautious and book profits or remain invested in the market considering 10 percent returns from August?

Long term investors are advised to hold on to their investments. We’re bullish from a four-year perspective. Needless to say, corrections are bound to happen from time to time, which is in fact healthy for any market cycle. One can invest even at these elevated levels by adopting a stock specific approach. If one finds a leg down opportunity in the market, one can gainfully exploit it to add to quality names.

Q: New age investors continued to support the market in the absence of FII flow in August. What is your advice to these new age investors?

New age investors are more tech savvy with many digital tools at their disposal, to help make informed decisions. They have no preconceived notions, and they value the proposition of new business models like gaming and ecommerce. If they can mix these inherent strengths with some age-old investing principles like investing around their circles of competence, well-defined risk appetites, sound temperament, disciplined approach, they can make the most of the investment opportunities.

Q: Realty stocks gained more than 12 percent in the last two weeks. Is it time to add these stocks to the portfolio?

We are positive on the listed real estate pack, having seen the back of a prolonged downcycle. Consolidation is the key theme pervading the sector, which has intensified in last few years. Hence, even if overall realty volumes may not pick up, good developers will witness an uptick in volumes. Post the downturn, many listed players have stronger balance sheets rooted in cautious discipline and conscious conservatism. The rally notwithstanding, stock prices still do not fully reflect the value of other businesses of retail, office asset, and hotels, which are part of the portfolios of certain developers.

Q: Which sectors can be looked at from a 1-year perspective?

We like the building materials pack. Affordable homes will see high absorption in the foreseeable future. The government will also continue with its investment in infrastructure. This will generate huge demand for pipes, plywood, MDF, laminates, paints, cement, cables and wires. We like several companies in these segments. We like the EPC space and well, which will benefit from high order inflow and now operate at healthy margins.

Q: Do you think banking & financials will be the next key driver for the market rally?

Banks have seen the completion of a protracted corporate NPL cycle. They have not yet fully reaped the fruits of this transition due to the pandemic effect. However, a re-rating is imminent in due course. We reckon that the pandemic has only caused transient asset quality issues for banks. Even if there’s a third wave, the damage to asset quality and disbursement will be minimal, unlike the impact of the hostile second wave.

Among other financials, life insurance is a structural story and the elevated death claims would largely be a temporary phenomenon. The pandemic is not expected to significantly impact reinsurance pricing. Also, asset management is an excellent play on non-deposit Indian Financial Savings, and resumption of net equity inflows into the sector augurs well both from AUM and profitability standpoint.

Q: Will the economy be able to grow in double-digit in FY22 despite third Covid wave risk?

Going by the frequency indicators, the economy has crawled out of the second wave lockdown impact more efficiently compared to the first wave. The formal sector has been largely resilient to the pandemic, manifested by healthy revenues and earnings of non-financial listed companies during Q1FY22. Even as the risk of a third Covid wave looms large, the disruption to economic activity will not be massive.

On the other hand, the rebound in Q1 FY22 GDP growth is no doubt stellar, but the numbers are more optical due to the large base effect from the last year. Private consumption and aggregate demand are still far from the pre-Covid levels, but they should reclaim the said levels by the end of 2021. Overall, we foresee FY22 GDP growth in the vicinity of 9 percent, around 100-bps short of a double-digit growth rate.

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