With the uncertainty of US elections behind us, one would like to believe the allocation to emerging markets, like India, should resume, particularly as the opportunities have emerged even bigger in the post-COVID environment for countries like India, Sachin Shah, Fund Manager, Emkay Investment Managers said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q) In the run-up to Diwali 2020, Govt released two stimulus packages to boost growth and revive investment cycle-do you think it is enough? What are your views?
A) In the post-COVID environment, the world is looking up to India to provide a scalable, and credible alternative to China.
From that perspective, it is a step in the right direction. Most of the measures are well-thought-out and should have a lasting impact on accelerating economic growth.
Q) Which sectors are likely to benefit the most from the stimulus packages unveiled by the Government in the run-up to Diwali 2020?
A) The government has in total approved PLI scheme for 13 sectors, each of these sectors has a huge potential to either scale-up exports or replace imports with domestic manufacturing for internal consumption (Atmanirbhar).
The sectors that are eligible for the PLI scheme are Automobiles & Auto Components, Telecom & Networking Products, Advance Cell Chemistry Battery, Pharmaceutical Drugs, Food Products, Textile Products, Specialty Steel, White Goods, High-Efficiency Solar PV Modules and Electronic/Technology Products.
Clearly, all these sectors are now primed for explosive growth in the years ahead
Q) What is your message to investors for SAMVAT 2077?
A) Equity returns are lumpy, and they are not delivered in a linear fashion and therefore most of the times returns delivered are bunched in a short period of time, which evens out over a longer period of time.
So, in that sense probably markets are ripe to deliver supernormal returns over the next two-three years to catch-up with its long-term average returns.
Therefore, it is important for investors to remain patient and not lose faith in equities as an asset class and continue to have appropriate allocations as that is going to be critical to capture the probable extra-ordinary returns over next two-three years.
Q) Which sectors are likely to hog the limelight in SAMVAT 2077?
A) CY2020 has been a year of change of trends in many ways. As compared to a narrow market movement of CY2018 & CY2019, the market rally is much more broad-based in CY2020.
The BSE Small-Cap index has gained more than 12% v/s the large-cap indices (Sensex & Nifty) flat for the last eleven months.
Even amongst the sectors, the Healthcare Sector & IT Sector have gained 40%+ v/s banking, real estate, capital goods, and power sector stocks losing more than 10%-15%.
Since Jan 2015 and up to Dec 2019, BSE Healthcare Index remained nearly flat for five years. In the process, the valuations of the pharma companies became more reasonable, with stock prices consolidating at similar levels for five years, whereas company earnings growing with better cost efficiency and some revenue growth.
In the last few quarters, pharma companies have started delivering much better profit growth and therefore valuations became even more attractive.
The current quarter commentary from most of the pharma companies suggests that the outlook for revenue growth and profit margins is decent, driven by the domestic formulations market, global API demand shift from China to India, and US generics markets witnessing stable pricing environment.
Q) FIIs have turned aggressively bullish on Indian markets especially in November which powered Sensex, and Nifty to record highs. Do you think the trend will continue?
A) With the uncertainty of US elections behind us, one would like to believe the allocations to emerging markets like India should resume, particularly as the opportunities have emerged even bigger in the post-covid environment for countries like India as the world is looking for credible & scalable sourcing alternative to China.
The best is yet to come
Q) Markets hit fresh record highs, but MF data suggest that SIP are still falling off. Do you think some of the retail investors have missed the bus who have stopped their SIPs? How are you analysing the data?
A) Retail Investors have been disappointed with equity & SIP MF returns being significantly below Bank FD rates over the last five years. They seem to have therefore now taken the direct equity investing route.
Clearly, in the last 6-8 months, Retail investors have preferred the direct investing route. It is quite evident from the new account openings at tech-savvy brokerage houses, retail volume share rising over the institutional volume on bourses and other data points.
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Q) Economic recovery is visible at least on paper and Moody's recent commentary on India's GDP confirms the sentiment. Do you think economy-linked sectors will be the winners in the near future?
A) The pandemic has played the role of a catalyst by bringing cost efficiencies and balance sheet discipline across sectors/companies.
A slight tailwind in the economic growth (for which green shoots are already visible) and an uptick in aggregate demand will set India Inc. for a multi-year very strong earnings growth trajectory. This will start showing up in economy linked sectors as this momentum unfolds itself
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