Vinay Khattar, Head Research, Edelweiss Wealth Management who is a staunch follower of Warren Buffett – Charlie Munger’s investing philosophy is of the view that investors should stay away from the lure of making short-term gains in unknown or low-quality names in 2021.
Khattar who has been with Edelweiss since 2008 says special doles need to be extended to the stressed sectors to get the recovery on track in Budget 2021.
Here are the edited excerpts from his interview with Moneycontrol’s Kshitij Anand.
Q) The year 2020 which most of us thought could go down as a black year for equity markets has in fact turning out to be a year of new trends, fresh record highs, and a whole new meaning to life. What are your views for 2021?
A) One thing 2020 has taught us is that it is futile to try to time the tops and bottoms of the markets, and one can only know the exact bottom or top in hindsight. It is the consistency and compounding that has long-term benefits.
It was rather a year of fresh optimism amidst the ‘The Great Reset’. As we move into 2021, we are more empowered, having sailed through a crisis somewhat comfortably and look forward to a long-term EM bull run that lies ahead of us.
Q) In one word if you have to define the year 2020 what would that be and why?
A) Reset. I strongly believe we got a ‘strategic time out’ to fix things for the better.
2020 was a story of recoiling, resetting and now we are progressing to rebuilding - be it in the businesses, markets or the economy.
Q) You just completed an event at Edelweiss. What were the major takeaways?
A) One major takeaway is from Dr Edward Yardeni’s words which sum up to say that excluding 2020, a roaring 20s decade is ahead of us. Most of our distinguished speakers are watching dollar weakness, commodity reflation, EM bull run as key themes for the next lustrum.
On the debt front, we believe more steam is left on the transmission front at the longer end of the curve and below AAA-rated credit instruments. With all said and done, the worst is behind us and better prospects lie ahead.
Q) What is your outlook on earnings for the year 2021?
A) We believe the 20% consensus earnings CAGR for H2FY21 is much less prone to downgrades. For the rest of FY21, even though we believe that demand headwinds will persist for domestic-oriented companies and input price tailwinds could be behind as lower commodity prices are in the base, the earnings will see a positive momentum as banking sector credit costs have peaked out and globally linked sectors like IT, certain auto stocks and commodities will be the major earning drivers. Over FY21-FY23, ove 25% earnings CAGR is a likely scenario.
Q) What are your expectations from Budget 2021? FM promised it to be a vibrant Budget and a lot of policies to support the economy have already been rolled out. So, what could cheer markets?
A) One big thing to be looked for in this budget is credibility. The expenditure growth exceeding 15 percent coupled with a credible borrowing plan will cheer the markets.
Partly, expenditure needs to be rolled out in terms of cash transfers that could fix our weak demand dynamics. However, the role of capex and infrastructure development is hefty to creating long term multipliers for the economy.
Some special doles need to be extended to the stressed sectors to get the recovery on track. I also believe it is time India moves to a mid-term framework, giving clear guidance not just about the very next year but also the next 3 years. Clear positive guidance could help in reigniting animal spirits.
Q) What is the feedback that you are getting from FIIs/HNIs for India?
A) One common consensus among most of our clients is that the economic recovery post the pandemic has been better than anticipated and has surprised positively.
While they are not ruling out shallow corrections in the market, most of them are of the view that the worst is behind us. With most fundamental and technical indicators signaling an overstretch in the market, most of our clients opine that any corrections should be used as opportunities to accumulate good stocks and that we should be prepared for positive earnings surprises.
Q) Bitcon outperformed most of the asset classes. Do you think it is time for investors to take cryptocurrency seriously and add some percentage to their portfolio which could be part of global diversification?
A) Both the RBI, as well as the government, have made it clear that they’re not very comfortable with the dealings in cryptocurrency. Though the honorable SC quashed the RBI circular, we would stay away from asset classes that are not regulated and are not perceived well by the regulators as well as the government.
Several reports of India’s intent to introduce a law banning cryptocurrency further add to our concern. Thus we would advise investors to exercise caution until further clarity emerges on the regulation front.
Q) Any new trends in terms of sectors which you are seeing that could last for the next couple of years?
A) Rising food inflation, good monsoon, absence of major floods and strong government thrust have led to a very good recovery in the rural regions.
So we remain positive overall in the Agri, rural, and allied sectors. Another interesting space where we expect to see a lot of traction is the insurance companies.
Post the initial setback in the first quarter, the insurance companies are making a strong comeback, with increasing thrust on direct sales. They’re very well poised to post sustainable long-term growth.
Lastly, we believe with PLI in place, tax incentives on new manufacturing units, and labor code reforms, India could potentially have a huge foreign direct inflow come in the manufacturing sector.
We believe contract manufacturers, textiles, specialty chemicals, pharma, and API companies would be a favorable play here.
Q) Your key learnings from the year 2020? And what would you advise investors to follow in the coming year?
A) The greatest investment opportunities come when great companies face unusual short-term circumstances. This is one very big lesson that 2020 has taught us.
When times like these arrive, the gap between the great companies and the average companies keeps widening. Such times are the stock pickers’ heaven and the most opportune moments for loading up on quality names.
One advice we would like to give is to stay away from the lure of making short-term gains in unknown or low-quality names. More often than not, you’d end up making gains on 2-3 of them and lose double of that in one wrong bet.
Stick to the known quality names, avoid short-term thinking, and don’t be in a hurry to book profits on your winners. As they say, cut your losses short and let your winners run.
Q) Value or beta – what would be more popular in 2021 and why?
A) I believe every investing is value investing. And the single largest component of value is growth. If there is no growth, then you will end up in a value trap.
In any market environment, neither would we chase growth at any price nor would we be buying into stocks that appear cheap but lack growth.
In 2021 and ahead, the key would be to buy stocks that can grow, are available at a reasonable price, and stick with them while they compound.
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.
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