Deepak Jasani, Head of Retail Research, HDFC Securities says that the expected Nifty EPS growth for FY22 may fall short in case the COVID situation prolongs in the country. This could also impact the fiscal situation.
A Chartered Accountant by profession, Deepak has a broad-based domain of expertise of more than sixteen years in capital markets. Prior to HDFC securities, Deepak was the Head of Equity Research at Kaji & Maulik Securities Pvt Ltd.
In an interview with Moneycontrol's Kshitij Anand, Jasani said that if the COVID situation comes under control soon, we may see a sharp bounce in economic activity and a rise (maybe temporary) in the stock markets. Edited excerpts:-Q) Partial lockdown in various parts of the country, vaccine shortage, as well as increasing number of death, is likely to impact economic activity as well as corporate earnings. What is the kind of impact you see on markets? And, what should investors do?
A) A lot depends on when the COVID waves will end once and for all. Curently, the health infrastructure in India is finding it extremely difficult to cope with such a large number of cases coming up at the same time.
Also, due to lockdowns across various cities/towns in India, the economic activity levels have fallen. High-frequency indicators have been mixed at least till March-end, post which some deterioration was observed.
This will impact the GDP growth and the fiscal situation at the macro level and corporate earnings at the micro level.
If the COVID issue gets resolved by say mid-May, we can still make up for the shortfall in the economic output. However, if this extends beyond May end, there could be renewed fears on the economy and asset quality front.
At such times, investors can recheck their asset allocation and in case the equity portion is higher than that planned, they could bring it down by taking profits.
They also need to keep a constant watch on the developments regarding COVID and asset quality issues faced by lenders. As and when they feel that situation is not going to improve soon, they can look at bringing down their equity portion some more and redeploy that money into equities later at lower levels.
Apart from the risks to the Nifty EPS, valuation can also undergo a change depending on the interest rate trajectory globally and inflation moves locally.
Q) The government has opened vaccines for all above 18 years. Do you think this could turn around the sentiment on D-Street or stock-specific action will continue?
A) While this announcement is welcome as it could mean an early end to COVID-related issues, investors will watch out for the speed and smoothness with which this is rolled out.
Once they are convinced about this, it could improve sentiments in the markets. The stock-specific activity could continue at a time when results and other micro news keep cropping up.
Q) Small & midcaps outperformed in the recent fall, but if the economy takes a hit, the excess in the broader market space might also go out. What is your view on the small & midcaps pace?
A) Small and midcaps have outperformed lately after retail investors upped their activity levels and institutions also started looking at them to hunt for alpha.
The valuation of midcaps and smallcaps are more than a lot of largecaps, probably because of low base and high expected growth rates.
Despite this, select small and midcaps could rise some more from here depending on results and other developments. However, this category is high beta.
Hence, whenever markets turn downwards, this category can fall more than the largecaps. In this age of disruption, select small and midcaps could find their niche areas and continue to do well.
Q) Pharma space is buzzing and most stocks have already outperformed even though the benchmark indices are trading flat to lower. How should one pick stocks in the pharma space?
A) Companies that have a balance between domestic and global business, do sufficient spending on R&D, are compliant with regulatory requirements, are nimble-footed to exploit opportunities, have shown good growth in sales and margins are the companies that could be shortlisted for investment.
In a time when the whole sector is doing well, one will have to be careful not to drop guard and go for small companies that talk about a lot of potential but have little to show in terms of past track record.
Q) Is the smart money moving towards Corona proof sectors? MFs increased allocation towards IT, healthcare, chemicals, and cement on an MoM basis in March while banks, oil & gas, utilities, and capital goods saw a decrease in allocation.
A) In such times, investors seek to shortlist sectors that will be least affected by the COVID pandemic as there is little visibility as of now as to when this will end. This will apparently protect capital.
However, for people who wish to take risk, sectors that have seen the largest fall due to COVID, could bounce the most once the situation comes under control.
Q) FIIs turned net sellers so far in April after 6 months. Do you think with rupee weakening, rise in COVID cases, lockdown could lead to further pressure on D-Street?
A) Apart from these reasons, FPIs are concerned about rising interest rates globally and the possibility of elevated inflation in India.
The expected Nifty EPS growth in FY22 may fall short in case the COVID situation prolongs. This could also impact the fiscal situation.
However, if the COVID situation comes under control soon, we may see a sharp bounce back in economic activity and a rise (maybe temporary) in the stock markets.
Q) Robinhood investing picked up in 2020 – do you think this is just a short-term phenomenon and the DIY approach will not last long as new investors may well fail to generate alpha as markets turn choppy?
A) Retail investors have got lucky as those who started to invest post the March 2020 sell-off have seen healthy returns on their portfolio and may have got an elevated impression about one’s own capacity/skill in spotting stocks and investing in them.
Discounted brokerage proved to be the bait for inviting a lot of new investors into the markets. However, once the situation normalises and the advantage of low entry withers out, the experience of the new set of investors may not be as good.
Generating alpha on a continuous basis is not easy and intermittent sell-offs may erode the wealth of this breed of investors. However, even assuming a good portion of these investors leave the market, the base of investors has grown and brings a lot more depth to the markets globally.
Q) View on metals, commodity-linked stocks in 2021?
A) Commodity stocks including metals have fared well over the past few months on expectations of large infra spend by US and China, low stocks, minimal capacity additions in the past few years and select disruption in mining activities across the globe.
Even though these stocks have risen quite well so far, they could still see some more upsides from hereon. But investors have to be careful to time their exit also as these stocks are notorious for their wild swings on either side based on evolving global demand and supply situation.Disclaimer
: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.