Investors are focused on FY22/23 earnings which will depend on the sustenance and progress in the recovery trajectory of the overall economy, says Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life.
Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life, who manages an AUM of about Rs 60,000 crorre said that unless India witnesses a severe second wave, SAMVAT 2077 should see steady improvement in overall economic activity.
For now, it appears that the worst of COVID is behind us and the economy should gradually revert to a steady growth path which augurs well for the equity markets, he said in an interview with Moneycontrol’s Kshitij Anand.
Q) Market hit fresh record highs in the run-up to Diwali. What is pushing markets higher and will the momentum continue?
A) There are multiple factors driving the recent market move. A relatively strong September quarter earnings and positive commentary by company management, consistent reduction in COVID cases in India and extremely strong FII flows in anticipation of an increase in India’s weight in global indices are all contributing to the market move.
Though it is very difficult to predict short-term movements, markets typically consolidate for a while after such a sharp rise.
Q) Most investors would want to write-off 2020 from their portfolio. Even after rallying more than 50% from March lows most portfolios are negative or at best single digit returns. What are you advising your clients?
A) Though they serve as markers in an unending journey, calendar/fiscal years are that not relevant in the investment process.
As we were advising in April/May, we would continue to urge investors to invest on a regular basis in a systematic manner and have a reasonably long investment horizon for an asset class like equities. Investors should stick to disciplined investing and try to resist the temptations associated with short term market moves.
Q) Green shoots are clearly visible be it in auto numbers, GST numbers, stable earnings, and the macro data. Do you feel that much of it is already priced in which would cap the upside?
A) We had a complete lockdown for almost two months and since the economy started to “unlock” in June, high-frequency indicators are steadily improving.
Some of the indicators are already near “pre-COVID” levels while others would get there in the next few months as the economy opens up completely. With the daily case count in India now running at half of its September peak, the unlock process should continue and the trends should become even stronger and broad-based.
It is always difficult to assess the extent to which an event/trend is priced-in but the trajectory of high-frequency indicators is positive and augurs well for the equity markets.
Q) What is your call on September quarter earnings? Some brokerages have already upgraded their EPS estimates for Nifty. What is your view – do you think numbers warrant an earnings upgrade and why?
A) September quarter earnings benefitted from some spillover demand from the previous quarter which was marred by lockdowns as many companies replenished their depleted channels.
The most striking feature of the earnings was the tight cost control that most companies have achieved and this had a significant positive impact on margins.
A strong Q2 print should lead to some upward revision in FY21 earnings. However, due to the COVID impact FY21 were expected to be a washout and hence have little relevance.
Investors are focused on FY22/23 earnings which will depend on the sustenance and progress in the recovery trajectory of the overall economy.
Q) As we approach the festive season – what would be your message to investors on Diwali 2020?
A) Investing is an all-season activity and festivals per-se should not have a bearing on one’s investment decisions. However, this is a good time for investors to take the resolve to achieve financial freedom.
Especially for youngsters, they need to use their human capital in their initial working years to accumulate adequate financial capital which can then be used in the later part of their life. This can be achieved through systematic investments in line with the risk appetite of the individual investor.
Q) What should investors’ expect from SAMVAT 2077? Any target that you have in mind for the next 12 months?
A) Markets have moved up sharply in recent months and may consolidate for a while before the next move. Unless India witnesses a severe second wave, SAMVAT 2077 should see steady improvement in overall economic activity.
For now, it appears that the worst of COVID is behind us and the economy should gradually revert to a steady growth path which augurs well for the equity markets.
Q) What is your view on small & midcaps for the next 12 months? Do you think the outperformance will continue?
A) During times of economic revival, small and midcaps tend to outperform the large caps given their inherent operating leverage and relatively cheaper valuations.
Something similar should happen in SAMVAT 2077 too as the market continues to recover along with the economy. Also, valuations in small and midcaps are reasonable at this point in time.
Q) What is your call on US elections? How will it impact Indian markets?
A) One must wait and see the actions taken by the new regime in the United States to take a call. Certain sectors like IT and Pharma are reasonably exposed to the vagaries of US politics and the way things are shaping it appears that we have avoided the worst-case scenario.
For now, a big event is behind us and the related uncertainty has also receded which is translating in buoyancy across markets.Disclaimer
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