Harish Krishnan, EVP & Fund Manager (Equity), Kotak Mahindra Asset Management, says the fiscal measures announced by Finance Minister Nirmala Sitharaman are balanced—they maintain fiscal prudence while providing some relief to the needy.
Krishnan advised investors to look beyond the near term and look at factors like earnings cycle in India has bottomed out and balance sheets of India Inc are in the best shape.
This along with key reforms like GST and RERA has improved the competitive positioning of many businesses, especially in the organised space, Krishnan says in an interview to Moneycontrol's Sunil Shankar Matkar. Edited excerpts:
What is your view on the new measures announced by Finance Minister Nirmala Sitharaman and are they enough? Do you expect more such steps in the coming months?
The recent measures announced are the continuation of various supply-side initiatives taken by the government last year as well as continued support to the poor and needy sections of society. These are balanced measures, which maintain a semblance of fiscal prudence as well as providing some relief to the needy. We continue to expect more initiatives from government in the coming quarters.
With the consistent fall in Covid cases, do you think the market is out of the woods and can report more than 20 percent gains by the end of 2021? What are the major risks that the market has to watch out for in the coming quarters?
The fall in the second wave of Covid cases is re-assuring, and the recent pace of vaccination does suggest a significant population receiving vaccination by the end of the year. This will aid in normalisation of economic activities. However, markets in the near term gyrate between greed and fear—emotions that can be triggered by many variables, including geopolitical developments, any further waves of Covid infections and its mutations, high commodity prices, reduction in global liquidity by central banks, etc.
So, we would suggest investors look beyond the near term and look at medium term of key factors—earnings cycle in India has bottomed and balance sheet of India Inc are in the best shape. This along with key reforms like GST, RERA, IBC etc has improved the competitive positioning of many businesses, especially in organised space. Thus, any source of volatility, we believe presents a good opportunity to allocate to equities for those having longer term horizons.
The RBI has lowered its economic growth forecast to 9.5 percent for FY22 but with the easing of restrictions, will India report double-digit growth in FY22?
Recent high-frequency indicators like e-way bills, power demand, etc do suggest quicker normalisation this time around compared to the last year. Most companies are better prepared to operate in this changed environment. Therefore, there are possibilities of GDP growth surprising on the upside. We would also sensitise that these gains of double digit, etc do still mean a very low GDP growth rate on two-year basis, hence it will be important to see the longer-term growth trend that will be projected in FY23 and beyond.
Growing retail participation is one of the reasons for the market rally. Do you think the trend will continue? Where are retail investors parking their money?
Increased retail participation has been a global phenomenon, which has also been seen in India. We have seen increased shareholding by Indian households, both directly in stocks as well as through mutual funds. However, despite this surge in flows, only about 5 percent of their incremental savings flow were invested into equities (Source: UBS). This suggests a long runway for allocation to equities by Indian households. Generally, we have observed, that retail investors have a greater weightage to small and midcaps compared to institutional investors that generally have greater exposure to larger companies.
With the reopening of the economy, do you think the sectors that were hit the hardest by the second Covid wave will see a stellar performance (in return terms)?
While one can't paint all sectors with the same brush, in many sectors which were impacted by Covid, we may see “revenge consumption”, maybe in sectors like travel, retailing, entertainment, etc. However, in some sectors alternate habits may also impact consumption on a structural basis, as consumers get habituated to new forms of delivery through apps, digital platforms, etc.
Ultimately, it is difficult to discern consumer habits, so we think a portfolio approach to companies across various sectors may present better risk- adjusted returns in this space.
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