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Last Updated : Sep 15, 2020 08:33 AM IST | Source: Moneycontrol.com

DAILY VOICE | Worst may be over for growth numbers, but not for markets: Sahil Kapoor of Edelweiss Professional

In terms of domestic valuation, Nifty is trading at 19 times FY22 earnings which don’t leave a lot of margin of safety.

In terms of domestic valuation, Nifty is trading at 19 times FY22 earnings which doesn’t leave a lot of margin of safety, Sahil Kapoor, Chief Market Strategist, Edelweiss Professional Investor Research, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) Is there expectation of another stimulus announcement?

A) I am hopeful that there will be a coordinated fiscal and monetary policy response to quell the momentum of slowing growth. For the last few months, a lot of heavy lifting has been done through the monetary policy. Fiscal policy has a room that can be utilized.


The stark shortfall in tax revenue requires stepped-up borrowing from the government which could support growth. In August, growth had slowed.

The sharp rebound witnessed in most sectors flat-lined. The services sector which contributes the most to the Indian economy has been in contraction for six consecutive months, as per Services PMI data.

Q) The way markets are reacting to bad news, it does seem like that the worst is over. But, can we say that the worst is over amid the COVID pandemic?

A) The worst, in terms of absolute growth, is behind us. But, that’s not sufficient to fuel a recovery. The sharp recovery that was majorly led by pent-up demand also fueled a stellar stock market rebound.

The markets will need further recovery and strengthening of growth to scale higher levels. So, while the worst might be over for the economy, better numbers are still down the road and need massive effort. There is no reversal to normal without hard decisions and support.

Q) The biggest driver of the equity rally is US markets? Some experts on D-Street feel that there could be some correction post US elections, and the same could flow down to emerging markets like India. What are your views?

A) US indices appear to have scaled levels that appear overheated. The market cap to GDP of the broadest Wilshire 5000 index, is now at 176% of GDP, S&P 500 is trading at a TTM PE of 25, the number of stocks which are overheated is at record levels and the Put-Call Ratio is signaling overheating.

All these factors tell us that the US markets are precariously placed. This may result in a deeper short term correction and can also have an impact on global equities including India and cause a fall in markets.

Q) FIIs seem to be going all in towards Indian markets which is a positive sign for now. But, is that to do with near-zero interest rates across the globe, or we are genuinely looking attractive?

A) The FPI data need to be scrutinized to understand the trend. The equity inflows of nearly Rs 47,000 cr included a massive scale of QIPs from large Indian banks and a whole lot of primary market deals. Debt flows continue to remain flat to negative.

Adjusted for this, the flows are not extraordinary. In terms of domestic valuation, Nifty is trading at 19 times FY22 earnings which don’t leave a lot of margin of safety.

India’s MCap to GDP has moved from less than 50% to nearly 78%, in the last 5 months. This makes Indian markets not so attractive at this level. A correction will likely provide a good buy-the-dip opportunity.

Q) There is a lot of chatter around the Dollar index which is likely to go down. How will that impact emerging markets like India? If Trump wins the election do you see a strong dollar and how that impacts equity markets?

A) We have been one of the most vocal proponents of depreciation in US dollars. We wrote a report highlighting that the US Dollar index may plunge to multi-year lows, at a time when it was trading in the vicinity of 100. At this juncture, the US Dollar index appears oversold.

Incremental bond purchase from the US Fed has slowed and the dollar appears set for a rebound. However, we continue to remain negative to the US Dollar over the medium term but in the next three months, the US Dollar is likely to see a sharp rebound and can cause a risk aversion episode.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Sep 15, 2020 08:28 am