We expect sectors like chemicals to benefit from the shift of trade away from China in the near to medium term. Auto sector is recovering from a cyclical slowdown and 2W/PV sales growth has turned positive even on a YoY basis, R Venkataraman, MD, IIFL Securities Ltd said in an interview with Moneycontrol’s Kshitij Anand.
Q) In the run-up to Diwali 2020, Govt. released two stimulus packages to boost growth and revive the investment cycle—do you think it is enough? What are your views?
A) Cumulatively, since April 2020, the central government has announced stimulus spending of ~2.1% of GDP and guarantees of ~1.8% of GDP.
The guarantees have shielded the banks from a sharp spike in NPAs while some of the spending measures like PM Aawas Yojana (Rs.180bn allocation) and additional allocation of Rs.400bn to MNREGA should help protect demand.
Overall, while the fiscal spending plan should have been higher, a stringent lockdown along with a targeted spending plan has helped prevent an economic meltdown. Further, the government has kept the room open for more announcements to support growth.
Q) Which sectors are likely to benefit the most from the stimulus packages unveiled by the Government in the run up to Diwali 2020?
A) The guaranteed credit to support stressed sectors should help avoid restructuring and help banks/NBFCs to report lower slippages.
While the allocation of Rs.180bn to PM Aawas Yojana may seem small, it will have a multiplier effect and support demand for several sectors.
The higher allocation should support demand in sectors like Cement (demand could increase by 3-4% of overall volumes), Construction, Consumer Electricals, and metals.
Q) What is your message to investors for SAMVAT 2077?
A) The corporate earnings in 2QFY21 have been better than expected and we have upgraded our FY21/FY22 Nifty EPS estimates by 13/3% in the 2Q reporting season so far.
That said, valuations continue to remain a bit stretched as Nifty is trading at ~20x FY22 earnings. The rally from the March 2020 lows has been quite sharp and broad-based.
However, going forward, the rally could narrow to stocks/sectors that have better visibility of high growth.
Q) Which sectors likely to hog the limelight in SAMVAT 2077/Year 2021?
A) We expect sectors like Chemicals to benefit from the shift of trade away from China in the near to medium term. The autos sector is recovering from cyclical slowdown and 2W/PV sales growth has turned positive even on a YoY basis.
Within the auto sector, a combination of improvement in replacement demand, normalization of new vehicle sales, and an expected decline in CAPEX should help tyres sector, in our view.
The pharma sector should also continue to do well, partly aided by the ~Rs70bn PLI scheme for Pharma manufacturing.
Q) FIIs have turned aggressively bullish on Indian markets especially in November which powered Sensex, and Nifty to record highs. Do you think the trend will continue?
A) The FII flows into India are likely to have been driven by better than expected earnings growth, reform announcements in important sectors like labour and agriculture, and improving risk sentiment.
While the global liquidity is expected to remain benign, the FII flows to India would depend on the execution of reform announcements and sustaining the recent improvement in economic data.
Q) Markets hit fresh record highs but MF data suggest that SIP are still falling off. Do you think some of the retail investors have missed the bus who have stopped their SIPs? How are you analyzing the data?
A) The monthly SIP flows have declined by ~10% from the peak of March 2020 (Rs78bn gross SIP flows in October vs. Rs86bn in March 2020). However, investors have opened ~2.5m new SIP accounts in the last six months (Apr-Oct).
A combination of high market volatility and hit on household income could have forced retail investors to reduce the allocation to SIPs.
While some of the retail investors may have missed the rally of the last six months, new account openings suggest that some retail investors have participated in the rally.
Q) Economic recovery is visible at least on paper and Moody’s recent commentary on India’s GDP confirms the sentiment. Do you think economy-linked sectors will be the winners in the near future?
A) The high-frequency data on the economy has been encouraging with several indicators turning positive on a YoY basis. Anecdotal data suggest festive demand has also been strong.
A well-targeted stimulus and improved execution of reforms can help sustain this growth momentum in the near to medium term. However, several countries are seeing a resurgence of the Covid-19 epidemic.
India also faces a risk of rise in cases due to a combination of easing lockdown restrictions and a surge in offline shopping for the festive season.
India also faces an additional risk of higher inflation. Hence, we would await further data post the festive season to take a firmer view on domestic sectors.Disclaimer
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