Invest when there is a virus in the market. This is how Amit Jain, Chief Strategist-Global Asset Class, Ashika Group, sums up the biggest learning from 2020. At Ashika Group, a financial services firm, they ask clients to invest when PE (price-earnings ratio) is below 20 and exit when it goes past 35, he says.
Jain favours infrastructure, real estate, metal and select PSUs over pharma & IT but insists on being stock-specific. In an interview to Moneycontrol's Sunil Shankar Matkar, Jain says if the liquidity-driven market rally continues, then there are higher chances of mid and smallcap indices touching new highs. Edited excerpts:
Q: Analysts have said that the bull run may now continue in midcaps and smallcaps but largecaps (benchmark indices) may consolidate. Do you agree? Do you expect benchmark indices to report double digit returns in the coming year if there is no major risk like COVID-19?
Yes, I agree, largecap stocks have already run up in the last eight months, hence there are much higher chances of their consolidation. For Nifty at 13,000, it looks difficult to generate sustainable double-digit growth over the next three years even if there is no risk of COVID-19. However, mid-caps have hardly generated any returns in the last three years, except some specific stocks in the IT & pharma space. As of today, the Nifty Midcap 50 is almost near its January 2018 levels, which was the previous lifetime peak for the index. If this current liquidity-driven market rally continues, then there are higher chances that soon midcaps & small caps index will touch new highs.
Q: Drivers of rally changed from IT and pharma to infrastructure, banks, metals, auto, etc, especially after the correction in September. Which are the key sectors that can drive the next leg of the rally?
Yes, this is what we preempted in my last interview with you on October 23, 2020. We advised a move from pharma & IT to infrastructure, real estate, metal & selected PSUs. We will continue to be bullish on these sectors by keeping specific stocks in mind. If this liquidity-driven rally continues, then we may see further expansion of PE multiple in these sectors.
Q: With the record monthly FII inflow of Rs 65,000 crore in November, do you expect the flow to slow down in December and to again start next year after the fiscal stimulus from the US?
Yes, FIIs have invested close to Rs 65,000 crore, the highest ever single-month purchase by FIIs in Indian markets. If you remember in my last interview with you on November 7, 2020, I categorically said that the next leg of the market rally shall be driven by FIIs, which is now a fact. We may continue to see healthy FIIs inflow till January 2021. However, we may see fresh short positions by FIIs beginning from February 2021 and that may be an appropriate time to rebalance within the sectors & stocks.
Q: What are the key lessons that you learnt from 2020?
The key important lesson learned for each Investor in CY 2020 is not to forget basic rule of investing, ie "Invest when there is a virus in the market". I remember when I was talking to clients to invest in the last week of March 2020, then everyone was so fearful that in spite of such compelling valuation i.e. Nifty PE< 20, most investors missed this entry point, which had come after 11 years of long wait. On the contrary, today when Nifty PE> 34, which is the highest ever in the history of Indian markets, they are willing to invest. I am still not sure if they learned their lesson of investing. For our clients, we always press to invest when PE< 20 & exit when PE> 35.
Q: With the government's initiatives to boost the economy through Atmanirbhar Bharat and other several measures, do you expect strong growth in the coming years, with a coronavirus vaccine a reality now?
Yes very much, I expect GDP growth to be above 10 percent in FY2021-22. In my view, the economy shall be functioning at 100 percent capacity in almost all sectors post-July 2021. Also in the current global geopolitical environment, which may be on a long-term path of economic distancing from China, India may get some favourable trade deals from the US, Japan and Europe.
Also in my view, the Indian economy is the only next best alternative to the world for low-cost production and higher consumption patterns, hence going forward, you will see much higher FDI in India, which will create a multi-decade growth story for the Indian economy by the end of FY 2021-22.
Q: After the September quarter earnings, we have seen a lot of upgrades and even the list of rating upgrades also increased considerably. Do you expect the same or better after the December quarter earnings? Do you think Q3 and Q4 quarters are important ones to see actual growth trend in the coming years?
I agree a lot of upgrade happened in the last three months, based on much robust consumption patterns in our economy. If you closely observe the human psyche, now they are not afraid of COVID-19 as they were till July 2020. This easing of fear has actually put the economy back on track to a great extent. Now GST collection and production numbers look much better. In my view, we will see robust Q3 and Q4 numbers, which will set a path for a strong recovery for FY21-22.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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