Amit Jain, chief strategist of Ashika Group and cofounder of Ashika Wealth Advisory, says the stock markets look overheated on ratios such as market capitalisation-to-GDP and price-to-book, although such factors may take a backseat in liquidity-driven markets.
Ashika Wealth had been cautious on banks since January 2020, but it is now bullish on the sector from a medium-term perspective because the correction is over, Jain, who has worked in banking and financial services for 18 years, told Moneycontrol in an interview. Edited excerpts:
Q: The markets have consistently hit record highs. What are the parameters that indicate whether the markets are expensive in terms of valuation and whether there is more room for a rally?
As of now, the Nifty P/E is close to 27, which is historically an orange zone, but given the retail clients liquidity in the market, we may see this rally continue at least in the short term. There are various parameters where the markets look overheated like market cap-to-GDP ratio and price-to-book ratio, but in a liquidity-driven market, these parameters may take a backseat.
Q: Do you expect more earnings upgrades in the second quarter? Have you changed your FY22 earnings growth projections?
We see earnings upgrades only in selected sectors for Q2 of FY22. On a broad basis, Indian companies will have growth of 15 percent-plus in FY22. Unless we have a third wave of Covid-19, we will see further acceleration of growth in the Indian economy and corporate earnings.
Q: The Nifty Midcap 100 and Smallcap 100 indices posted gains for the 14th and ninth consecutive months, respectively. Do you think their outperformance over the Nifty 50 will continue?
Yes, both the midcap and smallcap indices had been doing good for the last three months. This outperformance to the Nifty may continue at least till October-end. Post that, the broader market may take a breather. The only exception to this is any global meltdown, for which the Indian market may have its share of pain.
Q: Do you think that GST collections, e-way bill generation and peak power demand point to a better-than-anticipated economic rebound? Does it mean India will report growth of more than 10 percent in FY22?
Yes, all these indicators show that the Indian economy is bouncing back with full swing. India’s GDP has grown by almost 20 percent in Q1 and, along with average monthly GST collections of Rs 1.1 lakh-plus, it is a sign of a V-shaped recovery… In November, we had already predicted 10 percent growth for India's GDP, which now looks a reality.
Q: At current market levels, what sectors should one invest in?
We had been cautious on the banking sector since January 2020, but now we feel that time correction in banking stocks is over. Hence, we are bullish on banks from a medium-term perspective. At current levels, we see an opportunity for value buys in selected public sector units and the automobile space.
Q: The auto sector was hit badly in the past three months. What are the major reasons for this and how long will this underperformance continue? Is it time to pick auto stocks or should one wait for some time?
The auto sector has been struggling with semiconductor shortages for some time. This shortage may continue until the end of this calendar year. However, I personally see this as an opportunity to invest for long-term investors. As of now, this sector offers a value buy, with a staggered approach to buying.
Q: Realty (up 21 percent) and IT (up 28 percent) were the star performers in the past three months. What is the reason behind their rally? Is it time to book profits in these sectors or should one hold?
IT has been a leader since the Covid-19 outbreak and from this point we will see midcap IT companies will continue to outperform the broader markets in the short term. For the realty index, the bull run has just begun after 10 years of a bear cycle. We are bullish on quality stocks in this sector from the medium- to long-term prospective.
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