Moneycontrol PRO
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In Association With HDFC Securities
04 November, 2021| 6:15 to 7:15 pm
muhurat
04 November, 2021
6:15 to 7:15 pm

Bring it on,
Samvat 2078

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Life can only be understood backwards—but it must be lived forwards, said Danish philosopher Søren Kierkegaard. Benjamin Graham, the guru of value investing, borrowed the line to make the connection to the stock market. We look back at data and draw on the experience of experts to help you navigate the new year.

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Last year has been a rocking one, with the Indian market scaling new peaks but as we step into the new year, the market seems to be at a crossroads.

On one hand, India looks set for the next innings of growth, emerging out of a long spell of weak investments, a paralysed banking system, and poor earnings growth. Cleaner corporate and bank books, combined with tax cuts and changes in labour laws, the pitch is ready for the investment cycle to begin. Add to the mix the so-called revenge spending following the easing of Covid restrictions and the economy could soon be firing on all cylinders.

The other side of the story is the global economy, facing numerous challenges as supply disruptions feed into inflation stoked by the gush of liquidity unleashed by central banks.

If quantitative tightening is an inevitability markets are coming to terms with, the real and present danger of under-investment in commodities and persistent supply constraints juxtaposed against a slower-than-expected pace of growth of China owing to the government’s steadfast approach to realign the economy and reduce leverage signals nothing but chaos.

Markets have a nasty habit of springing surprises when expected the least and that, too, from the most unlikely of the quarters. All forecasts are ridden with risk, but we do our best to help you make an informed call on the market: deep dive into data to tell you the factual story and bring you the best market minds to share their wisdom.

Moneycontrol Muhurat Roundtable -
The wisdom that money can’t buy

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On Naraka Chaturdashi, the stars of D-street will align and market wisdom will reign, only on Moneycontrol.

On November 4, we bring together some of the sharpest minds on Dalal Street, with different styles of investing—from deep value to super-growth and momentum. They will discuss and debate on what the coming year holds.

N Mahalakshmi
MODERATOR
  • Madhusudan Kela
    Founder, MK Ventures
  • Raamdeo Agrawal
    Chairman, Motilal Oswal Financial Services
  • Prashant Jain
    CIO, HDFC Asset Management
  • Manish Chokhani
    Director, Enam Holdings
  • Ramesh Damani
    Independent Investor
  • Sunil Singhania
    Abakkus Asset Manager
  • Samir Arora
    Founder, Helios Capital
  • Devina Mehra
    Chairperson, First Global

The story of Samvat 2077

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Over the past one year, the market has been on a roll adding Rs 51 lakh crore in Nifty M-cap and Rs 111 lakh crore in total BSE M-cap. The biggest contributors were IT and banks. Indian IT companies have been the biggest beneficiaries in the post-pandemic world as the pace of digitalisation accelerated, allowing them the opportunity to scale and grow quickly. While corporate banks are emerging out of the bad asset problem that has persisted since 2014, retail bad loans have not been a stress point as feared at the onset of Covid last year. For a good part of last year, the market momentum has been moving from one sector to another as growth prospects started to look brighter for the core sector, driving valuations higher across the board. Optimism around the government’s divestment promise has triggered a rally in PSUs. BSE Small-cap and BSE Mid-cap expectedly did better with returns of 102% and 79% respectively compared with a Nifty return of 54% (as on October 20, 2021).

Long-term perspective – it’s not peaking out, yet

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After the rise in stock prices in the last year, markets have made up for the gross undervaluation in March 2020, when the market was gripped by extreme fear stemming from the coronavirus outbreak.

With the Covid risk ebbing and growth prospects brightening, the price-earnings ratio for the Nifty is pegged at 24.8x FY22 earnings, 43 percent higher than the last 20-year average of 17.33x.

On a forward basis, Nifty consensus P/e stands at 21x FY23 earnings. The market capitalisation to gross domestic product ratio is at a historic high, with M-cap exceeding the GDP. But interestingly, despite the steep rise since March 2020, the 10-year rolling return for the index is still below the levels seen during earlier market peaks.

During the peak of 2000 and 2008, the market was clocking a 10-year return in excess of 20 percent, which is an indication that despite the speed and velocity of the recent rally, we are not close to the frenzy experienced during earlier market peaks.

Back on the growth path

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India’s growth trajectory seems to be at a cusp of a significant change, driven by a rise in both private and public investment.

A lower corporate tax rate at 22 percent has made India more competitive than several Asian nations. The government’s production-linked incentive (PLIs) scheme has the potential to add roughly Rs 10 trillion in value over the next five to seven years.

The other key pillar of growth could be the real estate sector. After stagnating for eight years, the rising need for bigger houses because of work from home and greater affordability, thanks to lower interest rates, offers the perfect setting for the real estate sector to be a key driver.

These factors are likely to reverse the declining trend in India’s gross fixed capital formation or total investment in the economy.

Since 2012, there has been a sharp decline in private sector investments with growth largely driven by private consumption, powered by rising household credit.

A pick-up in private investments will be vital to sustaining India’s growth, especially with limited fiscal headroom following the coronavirus outbreak.

Comfort for the government, so far, has been low oil prices, and that could be the joker in the pack. India’s real effective exchange rate, though, looks a tad overvalued at 104.

Global growth –a bundle of contradictions

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Inflation across the world—from China to the US—has risen sharply over the last few months.

The overall surge in demand, along with supply chain disruption, in an environment of abundant liquidity is causing prices to rise. Global bond yields have thus been inching up.

A key risk to global markets is inflation becoming endemic, resulting in a faster pace of tightening and sucking out global liquidity, which has been the quintessential driver of equity valuations.

The International Monetary Fund’s base case assumes that inflation in both advanced and emerging economies would peak at 3.6 percent and 6.9 percent by the end of the calendar year and hover around 2 percent and 4 percent for 2022.

China’s deliberate effort to realign its economy, reduce leverage and limit the pace of growth, along with global inflationary trends, puts the world in a quandary.

China slowing down to 4.9 percent in the Q3FY21 from 7.9 percent in Q2FY21 and US inflation closing in on its 15-year high is spreading fear of possible stagflation. How this will impact Indian equities is hard to say.

Volatility and risk, not scary yet

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Despite the recent bout of volatility, risk levels are low, far lower than those experienced during big market drawdowns.

Since June 2021, the dollar index has started to show an upward turn, indicating that investors are turning wary. When investors are worried, it triggers a capital flight away from the world into the dollar.

The CBOE VIX, a barometer of volatility based on the S&P 500, is fairly low from a historic perspective. Ditto for the local volatility indicator India VIX, based on the Nifty 50.

Volatility can build-up quickly and sentiment does not take much time to change. During the market crash of March 2020 and October 2008, the volatility spiked, reversing the sentiment and exacerbating a market fall in less than a month.

India vs The World

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India has been the biggest gainer this calendar with a 27 percent return till date, higher than all emerging and developed markets, baring Russia which was the top gainer at 35 percent.

India’s valuation differential (difference in P/e multiples) compared with almost all markets has widened from the pre-pandemic levels. Its P/e seemed elevated compared with other markets earlier this year but that has been justified by strong earnings this fiscal.

Fund flows have also been supportive, with India getting nearly 5 percent of the foreign institutional investors (FII) flows into all markets for which data was publicly available.

That is nearly the same as Brazil and Russia but significantly lower than China’s 38 percent. India’s share of flows this year, however, has been lower than the 11percent in 2019, when Brazil saw outflows and Russia got a 3.6 percent share but China flows were higher than the net flows into all emerging economies put together.

India’s share of flows is disproportionately high compared with the weightage it commands in the MSCI indices, which indicates the high expectation from India’s growth story. The trend of FIIs de-risking from China with India being one of the key contenders is visible.

Sector and stocks– banking on the core

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The market’s sectoral preferences have got skewed over the last 10 years because of the change in the character of growth. Poor performance by banks and core sectors resulted in investors latching on to consumer and IT sectors, which showed steady growth, apart from other new growth businesses like insurance and specialty chemicals.

With the bulk of the bad-loan problem behind us, core sector growth, especially driven by rising real estate demand, is changing the complexion of the index.

Credit pick-up and revival in private capex would be key to sustaining core sector performance. The rising cost of raw materials and sluggish rural demand is weighing down consumer companies, which are already trading at elevated valuations.

IT growth continues to be strong, though stocks are not cheap. Across sectors, only a careful bottom-up approach can deliver superior returns.

Data Source: Ace Equity, CMIE, Kotak Institutional Equities, Elara Capital and investing.com

Place yours bets. Join the experts,
or dare to bet against them!

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3106 +
Users Have Already Voted!

They have made their fortune by betting on conviction and staying the course. This Diwali, they make their wager once again. See whose high-conviction call appeals to you, and place yours. Go bold, go bet.

These “bets” are placed in the spirit of the Diwali tradition and are not a recommendation to buy or sell.

Madhusudan Kela
Founder, MK Ventures
Madhusudan Kela Bets that Companies which will benefit from a cyclical upturn will outperform.
Raamdeo Agrawal
Chairman, Motilal Oswal Financial Services
Raamdeo Agrawal Bets that Credit cost cycle will reverse and banks will benefit.
Prashant Jain
CIO, HDFC Asset Management
Prashant Jain Bets that Capital goods will outperform by next Diwali.
Manish Chokhani
Director, Enam Holdings
Manish Chokhani Bets that Financials will beat the benchmark index by next Diwali.
Manish Chokhani
Director, Enam Holdings
Manish Chokhani Bets that Privatisation candidates will outperform in the coming year.
Ramesh Damani
Independent Investor
Ramesh Damani Bets that Select PSUs will beat the benchmark next year.
Ramesh Damani
Independent Investor
Ramesh Damani Bets that Valuation of IPL Teams will surprise on the upside next year.
Sunil Singhania
Abakkus Asset Manager
Sunil Singhania Bets that Largest PSU Corporate Bank will significantly outperform private banks.
Samir Arora
Founder, Helios Capital
Samir Arora Bets that High P/E consumer companies will continue to underperform the index.
Samir Arora
Founder, Helios Capital
Samir Arora Bets that Some fintech start-ups will blow up before they go public.
Devina Mehra
Chairperson, First Global
Devina Mehra Bets that Financials could outperform the benchmark index by next Diwali.
Devina Mehra
Chairperson, First Global
Devina Mehra Bets that IT Services will continue to outperform the index next year.
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