Daily Voice | Nifty at 20,000 likely by December, if no escalation in China-Taiwan conflict, says Manish Sonthalia of Motilal Oswal AMC

In all likelihood 20,000 on the Nifty is coming sooner than next Independence Day, probably before calendar year-end 2022. The only caveat is that China and Taiwan should not begin a war. Versus previously: What has changed?

1]  As the date to file returns ends, the FY22 tax inflow will be around Rs 16 lakh crore against Rs 10.5 lakh crore in FY21.

2] GST consistently remains above Rs 1.35 lakh crore. As we fast approach the festive season, the number will be easily more than 20-25 per cent versus previous months. The biggest bump up for GST in the coming months will be the conversion of Auto order book to revenues to GST.

3] 5G auctions count is at Rs 1.5 lakh crore. In its entirety, the spectrum is worth Rs 4.3 lakh crore at the base price.

4] Wheat prices are 14 per cent above the minimum support prices. Cash counters are ringing in the rural belt along with the fourth year of good monsoon.

5] Barring oil most of the CPI indicators have seen a cool-off versus May. Fuel, too, has seen no rise at all since April. This will aid discretionary spend for Indian households along with this year's health spend seeing minimal allocation. This festive season, it will be Big India Billion Shopping Sale, which will be really big.

6] India trade/exports data is consistently above $55 billion monthly run rate this year.

7] Oil/ rupee /interest rates now have been in this range for the past 20/30 days. We may see Monetary Policy Committee increasing India repo rates next month and post that, MPC will be in a wait-and-watch mode. Rather from Q4FY23, if oil prices revert to $85-90 a barrel, India will be in a position to reverse a certain percentage of rate hikes taken this year as most of India Inflation was imported.

8] Earnings have been better-than-expected in Q1FY23 with estimates cut only by 3 to 5 per cent maximum for FY23. Q2 realisations will be making a bottom as raw material prices have cooled off by 20-25 per cent. Post which – as supply chains are normalising and discretionary spend is rising in midst of falling inflation – it will be a boost for large sectors.

9] Banks earnings are being reported higher as the provision coverage ratio (PCR) of Big 4 banks move past 74 per cent. This should enable animal spirits for India credit offtake as banks have enough leg room to manage their liability book. It will also increase their risk appetite to participate in big corporate deals while ensuring market share gain in retail credit.

10] Six large industrial houses in India are entering high capex mode. This is the first time since 2012, for a few at least. This will have a multiplier effect in India. In the next 3-4 years, we will see MSME following the leaders to be a part of the new growth game.

11] Despite noise around the US recession, IT companies are still hiring - which is positive for PMI services and demand.

12] FIIs have started re-entering India Market with baby steps, this will be a sprint by October 2022.

13] Overnight Indexed Swap is now signalling a trade rate of 6.3 per cent, which in May was at 7.3 per cent. This also means that RBI will be unwinding rate hikes Asap.

The biggest gainer in the current financial year is Auto, which has surged more than 23 per cent. Do you still expect more double-digit gains in the space from here on?

Yes, the auto space has more legs on the upside. Margin headwinds give way to margin tailwinds as industrial metals cool down and semiconductor issues ease.

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Monsoon is good and the festive season is around the corner. Soon, the bulging order book of automobile companies will translate into sales, driving profit growth higher.

What are the key risk factors that can still dampen the market sentiment?

China-Taiwan remains the biggest risk. The other issues of slower growth, recession in the US and further rate hikes there are all priced in. Inflation has likely peaked for now.

What is your advice to retail investors as we have seen more than a 16 per cent rally in the last two months?

My only advice is …India is at an inflexion point and at the cusp of a golden decade. A lot of money is going to be made in equities in this period. Invest some portion of your savings in equities.

Also read - India is in a very good position right now, global geopolitics is in our favour: Nandan Nilekani

Why is the IT index underperforming others? Do you think the expected recession is capping the IT space rally?

Midcap IT companies' margins have bottomed out. Large Cap IT companies' margins are also close to bottoming out soon. IT remains a buy.

Your Next Trillion Dollar Opportunity (NTDOP) PMS fund has recently completed 15 years. What is the strategy and basis behind this PMS fund?

The fund invests in companies straddling all the three pillars of the Indian economy – consumption, savings and investment. As India incrementally crosses a new trillion dollar of GDP, the size of the opportunity only grows. This fund endeavours to invest in stocks of companies that can compound wealth over long periods of time.

Also read - Ruchir Sharma writes: At 75, India is finally ready to join the global party

Do you expect that India can achieve more than 7 per cent growth in FY23 and similar kind of returns in FY24?

The 6.5-7 per cent is doable for FY23. FY24 growth will depend a lot on how recession or slower growth shapes up in US/developed world. A lot of probabilities out here.

As India is the fastest growing country in the world, which sectors can benefit from the expected healthy GDP growth?

Financials, consumption and industrials are logical beneficiaries.