Nifty earnings likely to see growth in FY21 against earlier expectations of de-growth: Amit Ganatra of HDFC AMC

Amit Ganatra, Senior Fund Manager, HDFC AMC

The Budget announcements, with strong focus on growth and capex revival, augur well for kick-starting the new investment cycle and boosting corporate credit growth. Hence, markets hold promise in the medium-to-long term.

However, one needs to keep a watch on some of the near-term risks, such as rise in COVID-19 cases, surge in oil prices, geopolitical tensions, among others, says Amit Ganatra, Senior Fund Manager at HDFC Asset Management Company (HDFC AMC), in an interaction with Moneycontrol’s Swati Verma.

Ganatra has over 17 years of experience in equity research, including around 9.5 years in fund management. Before joining HDFC Asset Management Company Ltd, he worked with Invesco AMC and DBS Cholamandalam AMC.

Edited excerpts:

Market has witnessed a phenomenal rally since March 2020-low. Although, there have been intermittent corrections, the broader trend remained intact. What's your view on the current scenario and the outlook for 2021?

The Nifty50 index has rallied significantly post Budget, driven by pro-growth announcements and focus on capital spending. While the index is now higher than pre-COVID-19 level, it should be viewed in the context that the 10-year and 15-year NIFTY 50 returns are nearly 11 percent compound annual growth rate (CAGR). This is largely in line with the growth in nominal GDP. Moreover, the rally is further supported by a broad-based upgrade in corporate earnings over the past few months as the impact of COVID-19 was much lower than what was anticipated earlier. Q3FY21 has turned out to be one of the best earnings seasons in the last six years (since September 2014) with profit after tax (PAT) growth of nearly 32 percent.

The Budget announcements, with its strong focus on growth and capex revival, augur well for kick-starting the new investment cycle and corporate credit growth. Good sequential improvement in economic activity and high-frequency indicators, comfortable external scenario, monetary and fiscal measures undertaken, along with a relatively better placed rural economy also support this optimism.

Hence, markets hold promise in the medium-to-long term. However, we also need to keep a watch on some of the near term risks, such as a significant rise in COVID-19 cases, surge in oil prices, escalation of border tension between India and China and/or trade tension between the US and China, significant policy changes post the US elections, among others.

Q3 earnings showed more "beats" than "misses". What's your take on it? Also, any views on Nifty companies' earnings for FY21?

COVID -19 pandemic led to corporates focusing on cutting costs and deferring capital expenditure (capex). Moreover, the overall impact of COVID-19 on topline was lower than earlier expectations. As a result, as sales started normalising, earnings growth was much higher, largely led by increase in margins. Therefore, Nifty earnings are likely to grow in FY21 against earlier expectations of a de-growth.

Tell us about your investment strategy for your funds, in particular HDFC Tax Saver.

The focus of HDFC Taxsaver (“the Fund”) is to invest in companies that can steadily compound over a period of time. Its investment strategy focuses on investing predominantly in three types of companies –

• Companies with the potential to generate higher return on equity.

• Companies with the potential to generate good earnings growth.

• Companies with the potential to deliver an improvement in return ratios.

Moreover, the Fund undertakes sector allocation by taking active underweight/overweight sector exposures vs. the benchmark based on top-down investment calls. The Fund does not have a market capitalisation bias and invests across large, mid and small cap stocks.

Your views on performance of mid, small caps and large-caps.

We are witnessing consolidation across sectors, and dominant businesses are becoming more dominant. These businesses can be across market cap and across sectors, and to that extent the preference is to be positioned into dominant businesses with strong fundamentals. Hence, there is no specific preference for either large caps, mid-caps or small caps. However, the probability of identifying dominant businesses is higher in case of large caps, and the portfolio has a large cap bias.

With the COVID-19 vaccine hitting the market, what are the themes and sectors that are likely to outperform this year?

We believe that the sectors that are likely to outperform with the COVID-19 vaccine hitting the market include those ones that aim to benefit from accelerated adoption of technology, increased focus on health and healthcare, consumption recovery post the pandemic, and revival of capital expenditure across private and public sector.

What's the one thing that COVID has changed forever for the Indian economy?

While COVID -19 has been a black swan event of enormous proportions – it generated a response from corporates, households, central banks and central governments across the world.

In India, too, there was a strong response from the RBI, central and state governments, corporates and households. Therefore, as we now recover from COVID-19 – there is a definite upturn in corporate profitability after several years of weak earnings cycle.

Revival in corporate profitability has the potential to mark the beginning of a virtuous cycle as higher corporate profits can lead to higher tax collections for government which can once again be used to boost growth, capex and social security which, in turn, may push the entire economy towards higher growth and businesses leading to higher profitability.

What advice would you like to give to retail investors? Please elaborate.

For a retail investor, consistent and long-term investing and respecting asset allocation is crucial. BSE Sensex Total Returns Index (SENSEX TRI) has grown at a compounded annualised growth rate of nearly 15 percent over the last 20 years, compared to an average inflation of nearly 6 percent during the same period. Rs 100 invested in 1999 in SENSEX TRI would have grown to Rs 1,650 in 20 years. To achieve this, all that was needed was the patience to stay invested for 20 years, and through events like the 9/11 attack, Eurozone crisis, the global financial crisis of 2008, Brexit, the COVID-19 pandemic, among others.

Most investors trade several times, especially during the period of crisis. It is important not to get swayed by news, views, and the emotions of fear and greed. As the old adage says – “Time in the market beats timing the market.”

DISCLAIMER: The views expressed by Mr. Amit Ganatra, Senior Fund Manager of HDFC Asset Management Company Limited (HDFC AMC) are his own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.