Narendra Solanki, head, equity research (fundamental) at Anand Rathi Shares & Stock Brokers, believes the broader outlook should continue to remain positive as far as domestic factors are concerned with some expectation of volatility due to external global factors like the situation arising out of the pandemic, inflation concerns and comments by the US Federal Reserve on winding down its asset-buying programme and on interest rates.
For the next year, “We believe growth would be there for both the large and small companies and we could see pockets of outperformance in both these segments relative to sector. Currently we have a target of 19,700 for the Nifty,” Solanki, who has over 13 years of experience in the market, told Moneycontrol in an interview. Edited excerpts:
Q: How will the market look like by Diwali 2022? Will the record run continue?
Broadly the markets are poised fairly as far as medium- to long-term growth is concerned. In terms of earnings, so far we have seen good results on a topline basis where growth was seen for a large set of companies validating macro data. However, in some pockets the profitability has been somewhat volatile as a sharp run-up in commodity prices has impacted companies at the bottomline level coupled with supply and logistics issues globally which should get normalised in the coming quarter. Currently we have a target of 19,700 for the Nifty.
Q: The midcap and smallcap indices outperformed frontliners, rising 65 percent and 77 percent, respectively, from last Diwali. What is your outlook by next Diwali and will the outperformance continue?
When economic growth is high and consistent over a couple of years, midcaps and smallcaps have the advantage of a low base/size which enables them to grow at much higher rates than larger companies, which in turn is seen in price performance.
Secondly, the current outperformance was also the result of relatively low valuations at which these companies were trading. For next year till Diwali, we believe growth would be there for both the large and small companies and we could see pockets of outperformance in both these segments relative to sector.
Q: What are the sectors that could be in the limelight and why?
Performance-wise since last Diwali till today, the top sectors in our markets are metals, realty, power, consumer durables and capital goods, which have given returns to the tune of about 112 percent, 107 percent, 78 percent, 68.5 percent and 67.2 percent, respectively.
The least performing sectors in same period were FMCG (fast-moving consumer goods), healthcare, auto and banks, giving returns of about 21 percent, 25.5 percent, 34.4 percent and 36 percent, respectively. Overall, if you see the data, the broader returns for almost all key sectors have been positive as we have seen improvement in various economic indicators over the past few months after the unlocking post second wave of Covid.
Overall, the broader outlook should continue to remain positive as far as domestic factors are concerned with some expectation of volatility due to external global factors like the Covid situation, inflation concerns and US Fed comments on taper and rates. Consistently performing sectors like IT, chemicals, consumer and manufacturing, and sectors which are on the cusp of turning around like financials, infra, realty, etc., are looking good from the mid- to long-term perspective.
We don't have any target for then Bank Nifty specifically but since banks do have a large weight in the Nifty and were relative underperformers in the past few quarters due to various reasons like low credit growth, large NPAs (non-performing assets) due to lockdown, etc. This seems to be slowly turning in favour of the sector as we continue to move towards normalisation in the economy after unlocking and should definitely be reflected in earnings for coming quarters.
Q: The primary market saw record fundraising and a record number of initial public offerings (IPOs) from last Diwali. Do you expect the momentum to continue by Diwali 2022 and what are the IPOs that are expected to hit Dalal Street in the next one year? What could be the amount of fundraising in the next one year?
Definitely, the momentum in primary markets should continue as we see more and more unicorns and fintechs getting listed. Also, the biggest awaited IPO of LIC (Life Insurance Corporation of India) is also coming in calendar year 2022. Coming to the size of fundraising, it's very difficult as the LIC issue size is not final, yet looking at the current calendar year's fundraising which is almost about Rs 76,000 crore, for next year it could be between Rs 1 lakh crore and Rs 1.3 lakh crore.
Q: What are the top five events that will support market sentiment and top five risks that can spoil the market sentiment by Diwali 2022?
Top five supportive events: 1) Sustained Indian economy growth in double digits, 2) anchored inflation, 3) low/stable interest rates, 4) increase in government spending on infra and 5) larger corporate capex.
Top 5 spoilers: 1) Uncertain US Fed outlook on taper and rates, 2) unanchored inflation in developed markets, 3) China real estate crisis spiralling out of control, 4) lower economic growth than expected and 5) some geopolitical shock.
Q: What are those two stocks that you are bullish on for next one year or by Diwali 2022, and why?
Based on our research, our top picks for Diwali/new Samvat are Infosys, Hindalco, Coforge, Indo Count Industries and Vardhman Special Steels.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.