Budget 2021 Daily Voice | Insurance, chemicals, retail, consumer durables should do well over the decade: R Venkataraman of IIFL Securities

We believe sectors like insurance, chemicals, retail, consumer durables, etc. that have a long runway of earnings growth due to structural factors should do well over the next decade, R Venkataraman, MD, IIFL Securities said in an interview with Moneycontrol’s Kshitij Anand.

Venkataraman, who has over two decades of experience, in the capital market expects the government to roll out a time-bound plan in the Budget 2021 to sell public sector assets that could help maintain a lower fiscal deficit without raising taxes.

Here are edited excerpts from that interview:

Q) Sensex@50K! A landmark day for Indian markets in January but since then the market went only in one direction and that was down. What are your views? What should investors do now if someone plans to put fresh money?

A) The FII flows continue to remain fairly strong (~US$23bn in last four months, October-Jan MTD) and a weakening dollar should continue to favor flows to EMs.

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We believe the risk-reward remains favourable in some of the sectors like IT, Auto, Chemicals and Insurance.

While the Auto sector is seeing a cyclical upturn after two years of a sharp slowdown, the Chemicals sector should benefit from pick up in end-use industries like Autos, Construction, Textiles, etc.

Additionally, the Chemical sector has structural tailwinds like easternization of manufacturing and diversifying supply chains away from China.

IT sector outperformed the broader market (IT index up ~53% vs. ~15% rise in Nifty index in CY20) and this momentum should continue on the back of earnings upgrade cycle and improved demand visibility.

Q) What are your key expectations from the Finance Minister?

A) While we appreciate the pressure on the government to raise revenue, higher taxes could derail the nascent recovery momentum after a prolonged slowdown in the Indian economy, and hence the government should avoid raising tax rates.

India’s manufacturing competitiveness is poor partly due to infrastructure bottlenecks and hence the CAPEX spending momentum should be maintained.

While the government has been making efforts to raise revenue via disinvestments, the delays are hurting the credibility of this effort. A time-bound plan to sell public sector assets could help maintain a lower fiscal deficit without raising taxes.

The government should also take advantage of low-interest rates and issue longer-term bonds (say 30 years or 50-year bonds).

This would reduce the pressure to roll over debt in the near to medium term and lower interest rates would help contain the interest expense of the central government.

Follow Moneycontrol’s full coverage of Union Budget 2021-22 here

Q) With markets hitting fresh record highs what should investors do with underperformers in their portfolio?

A) Underperformers will need to be evaluated on a case to case basis. If the underperformance is due to short term factors related to sector/company, it would be prudent to stick to the portfolio.

However, if the stock is underperforming because of structural factors/balance sheet stress etc., selling the stock could be a better choice.

Investors also need to keep in mind that the recent rally has seen many sector rotations and also rotation within sectors. For example, within the IT sector, Wipro which was underperforming its peers is now catching up.

Similarly, PSU stocks rallied sharply in late CY20 and Private banks, which underperformed the broader market until October 2020, jumped sharply from November.

Q) Which sectors are likely to be in focus in the next decade?

A) We believe sectors like Insurance, Chemicals, Retail, Consumer Durables etc. that have a long runway of earnings growth due to structural factors should do well over the next decade.

Q) What are your views on December quarter earnings so far? Do you think that earning upgrades will only increase from here on for India Inc.?

A) The reporting season so far has been good with the aggregate FY22 PAT of BSE500 companies seeing a ~3% upgrade in the last three weeks.

The FY22 estimates are already building in a very strong acceleration of more than 35% YoY, and hence we believe that the earnings upgrade momentum may not accelerate from current levels.

Q) How has been your journey in equity markets as Sensex rose from 100 to 50,000?

A) The way the market moved in the last few months and if you have kept faith in the equities when it was going down suggests the power of spending time in the market rather than timing the market.

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Disclaimer: The views and investment tips expressed by 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.