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Daily Voice | Don't expect big surprises in Budget, but see the long-term intent of government: Abhay Agarwal of Piper Serica

Current correction has brought the valuation of blue chips as well as high-quality mid and small cap stocks to a reasonable levels thereby improving their long-term returns.

December 25, 2021 / 11:05 AM IST

New-age investors have supported the market in last 1-2 years. Abhay Agarwal, Founder and Fund Manager at Piper Serica, advises such young investors to 'follow their wallet’ and invest in companies of which they are also customers.

Agarwal has nearly three decades of experience in the equity stock market.

On the Union Budget 2022, which is expected to be presented on February 1, he said, "We do not expect any big surprises. The focus of the investor community will be on the indication of long-term intent by the government through the budget measures."

Edited excerpts:

After more than 11 percent correction from record high, is it time for investors to pick quality stocks?

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This is an excellent opportunity for long-term investors who have been under-allocated to equity to increase their allocation. This correction has brought the valuation of blue chips as well as high-quality mid and small-cap stocks to a reasonable levels thereby improving their long-term returns. While we expect the market to stay volatile in the next 3-6 months, we expect the overall bias to be on the positive side.

Which stocks/sectors look attractive for bargain hunting after the recent significant correction?

Leading private banks, NBFCs, healthcare, insurance, consumer tech, food and beverages and real estate sectors look attractive in this correction. Each of these sectors need to do well for the country to meet its aspiration of 7-8 percent annual GDP growth over this decade. Investors will do well to buy the leader in each of these sectors at their current price.

The year 2021 saw 65 public issues worth Rs 1.31 lakh crore (the record fund raising). Do you expect similar action in IPOs in 2022?

India IPO market was very robust in 2021 but it benefitted from a record high global IPO market. At $17.5 billion of IPOs in 2021, India is still one-fifth the size of China and one-tenth the size of funds raised by the US IPOs. The overall global IPO market raised more than $450 billion in 2021, an increase of 67 percent over 2020.

The interesting thing about the Indian IPO market is that for the first-time retail investors got to invest in consumer tech companies that were hitherto owned by private equity funds. Companies like Zomato, Nykaa, Policybazaar, Star Health etc. have increased the investment options for long-term retail investors.

We expect this trend to continue in 2022. Other than the big-bang IPO from LIC, we expect several IPOs from leading consumer tech companies like Byju's, Delhivery, Ola, PhonePe, Mobikwik and Flipkart. We expect the investor response to be positive if the valuation is reasonable and there is a well-defined path to profitability.

CMS Info Systems, HP Adhesives and Supriya Lifescience will debut on the bourses next week? What could be your expectations for listing premium and why?

We are expecting a robust listing from Supriya Lifescience since it was a reasonably priced offer. We expect a listing premium of 50 percent or more. At the same time, the company is still a small cap company so it will need to demonstrate solid growth to command a premium multiple. HP Adhesives should list at a premium of 20-25 percent based on current market trends. We are not expecting a big-bang listing from CMS Info Systems.

At the age of 25-30 with a balance of Rs 10 lakh, where should one invest in 2022 or how should one allot money in his/her portfolio at the start of 2022 to get healthy returns?

History has proved that the earlier one builds a portfolio of high-quality stocks and then stays invested without disturbing the allocations, higher are the long-term returns. Young investors should ideally 'follow their wallet’ and invest in companies of which they are also customers.

As India is one of the youngest countries in the world, investors should do their research on which sectors will benefit from consumption by the millennials and Gen Z over the next 5-10 years. We see companies in financial services, healthcare, consumer Internet, real estate, wearables, education, F&B, travel and entertainment etc. to be big beneficiaries of this long-term change in consumption pattern.

Now more than a month left for the Union Budget presentation. Do you think it would be a big bang budget and what would be focus areas? Also is there any populist measures given the states elections going ahead?

With better-than-expected direct and indirect tax collections, the fiscal situation is positive after a long period of time. This gives the government an opportunity to provide long-term stimulus and focus on creating a virtuous cycle of private capital formation. We do not expect any big surprises.

The government is aware of the tweaks that it needs to do in tax structures and slabs and of the need to remove anomalies in various regulations that lead to unnecessary litigation. The investors will overlook minor populist announcements. The focus of the investor community will be on the indication of long-term intent by the government through the budget measures.

In the year 2022, what are the key events and risk factors (global and domestic) to watch out for?

Domestic markets are taking political stability for granted for the next 2-3 years. However, there could be turbulence depending on results of state elections in 2022. Other than that, the known risk factors are RBI turning hawkish in case of spiralling inflation and a bad third wave that leads to national level lockdowns. In our opinion, the probability of these events is low.

The single biggest risk factor for global markets continues to be an increasingly hawkish Fed to rein in higher-than-expected inflation. In a world that is washed in cheap liquidity, asset prices may deflate very quickly if that liquidity gets drained. However, we believe that Fed will not rock the boat and will transmit any rate hike in advance to markets. We expect the Fed and RBI to go for a soft-landing in the worst case.

Disclaimer: The views and investment tips expressed by investment 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.
Sunil Shankar Matkar
first published: Dec 25, 2021 11:05 am
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