Markets have started discounting robust growth in FY22 in most and even bumper FY23 numbers in some. The Nifty50 companies are projected to earn 15 percent higher in FY22 and exhibit 20 percent growth on top of that in FY23, Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:Q) What is fueling the appetite of FIIs for Indian markets – is it the MSCI inclusion, green shoots in the economy, an overhang of US Presidential elections getting over, or expectations of the stimulus package?
A) Increase of weightage of Indian stocks and new additions are likely to attract a large pool of capital who follows such index passively. Many active fund managers’ are positioning themselves ahead of such large passive flows.
Steady progress on the COVID-19 experimental treatments and Vaccines front is igniting hopes that we will put this pandemic behind in 2021.
New US administration and their possible choice of key officials like former Fed chairwoman Janet Yellen as treasury secretary would mean the liquidity spigot will open further. This has enthused the bulls.
The dollar index is trending gradually lower and that is forcing fund managers to look for international assets.
We are also witnessing selling in other safe-haven assets like precious metals as well, and that is why emerging markets are attractive US dollar-denominated investments. India is getting its fair share from this pool of capital.
Q) What is your take on September quarter earnings and can we say that the recovery is underway?
A) FY21 has been impacted due to the coronavirus pandemic and growth is likely to remain subdued. On aggregate, the Street is penciling in 12 percent earnings growth for FY21.
Markets have started discounting robust growth in FY22 in most and even bumper FY23 numbers in some. The Nifty50 companies are projected to earn 15 percent higher in FY22 and exhibit 20 percent growth on top of that in FY23.
Q) How should one pick stocks in the current environment when benchmark indices are gunning for new highs almost on a daily basis?
A) Bottoms-up approach of choosing a company with strong growth prospects, visibility of higher cash flow, and capable management to execute the plan to convert opportunity to profits available at a reasonable valuation should be incorporated to choose a stock.
Overall, the market valuations and sentiments play a vital role in the short run and those markers should be used to adjust asset allocation.
When the market is looking extended and expensive one should pull back some capital at risk and reallocate it to safer asset classes and vice-versa.
Q) We are approaching the last month of the calendar year 2020. Any lessons which you would like to share with your readers?
A) Lesson to learn for a newbie and to revise for older hands is as follows - “be a smart contrarian”. When there is doom and gloom around – summon the courage of your conviction to go against the herd and allocate to stocks.
When there is euphoria around – gradually leave the party before the music stops.
Q) What is your view on the small & midcap space which sizzled so far in 2020 after 2 years of underperformance? Will the momentum continue in 2021?
A) We believe momentum will pick up and midcap and small-cap will perform better in FY21. As the economy recovers and growth picks up, midcap companies will be able to earn more and their share prices are likely to reflect that.
Q) What should be the ideal investment strategy if someone wants to put fresh money – wait for a dip, or buy at current levels? And how should one plan the asset allocation say he/she is in the age of +30 years?
A) It is an individual’s decision. Asset allocation plan is to be prepared according to one’s liabilities, ambitions, and risk appetite.
For an average block, 70 percent allocation to risker assets and 30% to safe fixed income assets would do the trick.Disclaimer
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