Systemic investment plans are set to see record inflows in the coming years. An increasing share of disposable income and intensifying focus of retail investors on financialisation of savings will keep driving funds towards SIPs, says Anil Rego, founder and fund manager at Right Horizons.
The Chartered Financial Analyst with more than 30 years of experience in financial markets feels now the market is entering into the last leg of interest rate hike cycle. "We may witness consolidation in first half of FY23," he says in an interview to Moneycontrol.
In the second half of FY23, on account of a pent-up demand and normalisation of margins, earnings growth will kick in and play a trigger for the new leg of rally in the market, he says. Excerpts from the interview:
Do you expect the SIP inflow to hit new records every month in coming years?
Yes, today retail participation is close to 25 percent in the domestic markets which is at an all-time high. Increasing share of disposable income and focus of retail investors towards financialisation of savings will keep driving SIP flows to the markets going forward also.
Any thoughts on quarterly corporate earnings?
In Q3FY23, we witnessed demand slowdown from consumer-focussed companies which was also anticipated since we are now in the fourth quarter of rising interest environment. On the other hand, while margins have normalised for most of the companies, topline growth was mainly contributed by volume growth.
Since we are witnessing a demand slowdown environment, companies are focussed on maintaining market share, rather than improving realisations. While the Budget has made some provisions for increasing disposable income for salaried employees and a good Rabi sowing will keep rural demand upbeat going forward, we expect demand environment to normalise in two to three quarters, considering that we don’t see any unexpected rate hike from the RBI.
Have you seen any surprise element in the December quarter earnings season?
Since raw material prices corrected sharply across categories from a high, it facilitated companies in buildings material (paints, pipes, wire & cables, tubes etc) to gain market share from unorganised and smaller players. Also, auto demand sustained and amid slowdown environment with higher lending rates, NBFCs and Auto companies posted stellar result.
Do you think the equity market is facing more negatives than positives at this point of time? Does it means it will be another year of consolidation?
At this point of time, most of negatives such as geopolitical tension, weaker currency, inflation, higher crude prices, and uncertainty of Fed interest rate trajectory that impacted the market in 2022 are mostly priced in and now that market is entering the last leg of interest rate hike cycle, we may see some consolidation in the first half of FY24.
In the second half of FY24, on account of pent-up demand and normalisation of margins we will see earnings growth kicking in which can act as a trigger for the new leg of rally in the market.
Do you have any exposure to Adani Group stocks? Also, what is your advise to investors on these stocks?
No view.
Do you believe the economic growth will surpass 7 percent forecast mark set by RBI for FY23?
We expect growth to hover around 7 percent range, and don't see any material surprise on growth front.
Do you think the new-age stocks are a great investment to be made at this point in time?
During 2020-21, many new-age businesses came up with IPOs, names like Zomato, Nyka, Paytm, Policybazaar etc. Disclaimer, we are not invested in any new age businesses. These companies don't come in our valuation- growth framework as path to profitability is not visible while multiple is way above our comfort level.
Investors should wait for these companies to showcase at least five-six quarters of sustained profit growth with improvement in valuation matrices before investing.
We don't invest in companies without earnings and margins visibility.
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