Amit Jain, co-founder of Ashika Wealth Advisory, says that the positive trend in the market could be the result of Street's expectation that the central banks will continue providing monetary support in the medium to long term. However, in the face of rising inflation, this assumption may not hold true.
In an interview with Moneycontrol's Sunil Shankar Matkar, Jain said he expects the US to start rolling back quantitative easing measures from 2022, which will impact the liquidity-driven bull run in global equity markets.
Edited Excerpts:
Q: With market recently forming a fresh top, do you think it has put aside fears of a third Covid wave? What other factors are at play right now?
Market & HNI investors are worried about near lifetime high valuation of the stock market, however, the global & local liquidity is driving the market to this record valuation. Retail investor participation is again touching the 2008 & 2018 levels, which may be alarming for retail Investors.
As of now, the market is factoring that the easy monetary policy will continue in the medium to long term. This may not be a correct assumption due to increasing inflation in the global economy. Somewhere in the beginning or middle of 2022, we will see interest rate hikes in the US, which will impact this liquidity-driven bull run in the global equity markets.
Q: IPO season is back! Zomato recently went public, Paytm and LIC are to follow the suit. Do you think the primary market will see record fundraising in 2021 and what are big issues lined up in the coming period?
With the listing of GR Infraprojects & Clean Science on Monday, investors made almost 100 percent return on investment (ROI) in less than fifteen days. These listings show, that there is enough risk appetite & liquidity for IPOs & equities as an asset class.
I agree with your view that FY2021-22 may have record fundraising because now Indian Investors has accepted new-age business models as part of their investment portfolio. These new-age business models like Paytm, Zomato, Mobikwik are globally accepted business models, which focus on market share for an initial ten to fifteen years of their existence & then become market leaders to dictate terms & pricing of the products & services. As of now, we have a big queue for IPO's like NSE, LIC, OLA, OYO in addition to the abovementioned IPOs.
Q: Market mood suggests that the US Federal Reserve could start tapering bond purchases towards 2021-end or beginning of 2022. Do you agree?
Globally, inflation is touching a new high due to excessive liquidity created by global central banks in the last fifteen months. US FED, Bank of Japan & EU have infused almost $9 trillion which is about 300 percent of India's GDP. Hence, to control this inflationary pressure on the global economy, soon central banks may start increasing interest rates & it can be as early as the first half of CY 2022.
Q: How are FIIs looking at the market?
FII's had been cautious on the Indian market since March 2021. In the last four months, they had lightened their positions rather than adding new positions to their portfolios. From April-to-date, they have already sold equities worth Rs 25,000 crore.
Most FII's have a cautious view on asset-heavy businesses, on the contrary, they are bullish on asset-light business models along with defensive sectors like IT, FMCG & Healthcare Sector.
Q: What are the biggest risks for Indian equity markets right now?
The biggest risk for the global & Indian stock market is the reversal of the lower interest rate cycle by US Fed at the beginning of CY 2022. Also, if we have some accident coming out of the global derivative market, which is almost twenty times bigger than the global equity market. Also, increasing geo-political risk within Gulf countries & entry of China & Russia in Afghanistan can challenge the supremacy of the US, which may not be viewed positively by the global stock markets.
Q: Given the rising fuel prices in India, do we really need to worry about inflation concerns, though experts feel it is transitory and not permanent?
Not really, this fuel inflation impacts local citizens of India as they pay higher prices for petrol prices. It may not have a major impact on the Indian stock market as this hike in fuel price may not have a big impact on the Indian financial sector or the IT sector which constitute almost 56 percent of Nifty Stocks. Hence it is not a big event for the stock markets. It may impact some of the sectors like automobile, logistic, travel & tourism or related sectors.
Q: What will be the wealth-creating sectors in the coming year and why? Also, what are the new sectors that investors have to look at for their portfolios?
For Indian investors, pharma, specialty chemical, IT (AI-based companies) & the automobile sector will create multibaggers in the ongoing decade. Also, most of the new age & oligopoly businesses will also create multi-baggers at this point in time.
Q: Inflow into equity mutual funds dropped significantly in June compared to May but SIP flow remained strong? What does the flow indicate?
Equity Mutual Funds SIP flow generally slows when the market is either at a lifetime high or has crashed. In both extreme situations, you will find retail investors taking a back seat, hence it is the normal trend of the mutual fund Industry. However, in my view, investors should increase allocation in gold & defensive sector mutual fund schemes now.
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