Nimish Shah of Waterfield Advisors feels this is the right time to remove the laggards from the portfolio, irrespective of the sector, and is also the right time to trim the portfolio tail to have a reasonable allocation to good quality companies and fund managers.
"Good quality businesses with competitive advantage and strong visibility on sustainable growth over the next 2 years is where our focus is," he said in an interview to Moneycontrol's Sunil Shankar Matkar.
According to him, remaining under-invested in equity markets can be a larger risk than the risk of price erosion. "This is especially true on the back of a global pandemic event that hit global growth prospects," the Chief Investment Officer – Listed Investments at Waterfield Advisors said.
Q: What is your analysis of December quarter earnings? Do you expect the upgrades in earnings to continue?
Both the September and December 2020 results have surprised on the upside indicating a sustainable ground-level pick-up in demand. The pro-growth Budget that focuses on a 35 percent increase in capital expenditure for FY22 will further support the economic revival and thus pushing up corporate earnings. With the massive increase planned in the government capex program, private sector capex is likely to revive in sectors like Infrastructure, Real Estate, Automobiles, Metals and Cement. As a result, these cyclical companies could witness sustainable topline and bottomline growth over next few years. With growth coming in these sectors, the NPA concerns of Banks and NBFCs too can abate leading to a healthier bottomline growth.
Markets expect a……30 percent growth in Nifty50 earnings in FY22 and we believe that this growth is possible that could be led by Financials, Auto and Cyclical sector corporates.
Q: What do you want to add in the portfolio, in terms of sectors, after Budget, and why?
Post Budget, we have moved Financials from Neutral to Overweight. A natural beneficiary of the economic revival, Banks and NBFCs could benefit from topline growth and from healthier bottomlines due to reducing NPAs. We also like the IT space as the transition to a larger share with online business was hastened due to COVID-19. Indian IT companies have changed their strategies and product mix quite rapidly to capture the growth in digital and cloud computing businesses. Infrastructure will benefit but here we would prefer to play the good quality mid-cap ancillary route where the growth potential could be higher. In cyclicals, we have moved from being Underweight to Neutral. Auto sector too should see better days ahead given that the sector has been through rough times over FY19-FY21 and the recent boost to the sector through PLI incentives.
Q: What do you want to delete from the portfolio, in terms of sectors, after budget, and why?
Given the consistent recovery in demand across sectors, we are not negative on many major sectors. However, given the sharp rally in prices post Budget, we are cautious and selective in what we advise clients to hold in their portfolio. Good quality businesses with competitive advantage and strong visibility on sustainable growth over the next 2 years is where our focus is. This is the right time to remove the laggards in the portfolio, irrespective of the sector. It is also the right time to trim the portfolio tail to have a reasonable allocation to good quality companies and fund managers.
Q: What is your analysis on the Budget fineprint as most experts feel it is a growth-oriented budget? What is your rating to the budget out of 10?
The Budget is high on Growth and the path to fund the Growth is through dis-investments, privatization, and capitalization of government assets. While full marks on the growth intent, execution would remain the key. Execution is one area where the past history has not been very encouraging. A focused and time-bound approach as detailed in the Budget would need to be achieved by the Government.
Q: Do you think the budget really gave a boost to the banking & financial sector? Do you think the creation of bad banks will solve the NPA problems if they arise in the future?
There are many positives for the Financial sector. Also, the sector had not participated as much in the post COVID to pre-Budget time. Various measures announced, including the creation of a Bad Bank to tackle the NPA issue and keep the good banks clean will certainly help the sector and our economy. Creation of a Bad Bank will tackle the current NPA situation that is a culmination of many years of accumulation. With more awareness and with use of technology, hopefully, the future NPA problem would be better managed and controlled by the Banking and NBFC sectors.
Q: What should be the investment strategy post Budget 2021? Should investors continue with buy on dip strategy, to rejig their portfolio?
Remaining under-invested in equity markets can be a larger risk than the risk of price erosion. This is especially true on the back of a global pandemic event that hit global growth prospects. The revival, as seen in recent past, has been swift and the pace of recovery has surprised everyone. Given the sharp rally in prices, we would suggest investing regularly (like an SIP) over the next 3 months. We will also advise to add more to the SIP if the markets take a larger than expected dip. Buying on dips is akin to timing the entry and would not suggest the same.
Q: Do you think the divestment target set by the government (which also promised to deliver) is achievable given the current scenario?
The target of Rs 1.75 lakh crore, lower than the FY21 target of Rs 2.1 lakh crore, looks to be achievable. LIC dis-investment can be a major share of this target and the Governments focus on ensuring this offer for sale goes through well in time will be crucial to meet this target. Other large companies include the likes of Air India, BPCL, Container Corporation, IDBI Bank apart from privatization of 2 PSU Banks and one general insurance company.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.