In Budget 2022, we expect the government to focus on increased spending on priority sectors such as  Agriculture, Infrastructure & Reality, Healthcare, Manufacturing and Defence, Mayank Kaushik of Trustline Securities – said in an interview with Zeebiz’s Kshitij Anand.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

Edited Excerpts:

Q) Another year of double-digit returns for investors when benchmark indices closed with gains of over 22% each beating fixed income instruments hands down. What is your view for the markets in 2022?

A) The Nifty50 index clocked gains close to 32% from January to October month. But now the tide is turning against the Indian equities.

The Indian market has already corrected 8%-9% from its all-time highs in October month to till now. The decline in the Indian markets was accompanied by a significant FIIs outflow.

What apparently spooked the bulls has been a return of inflation on account of possible three interest rate hikes in FY22 by the US Fed, concerns emanating from the new Covid19 variant – Omicron, semiconductor shortages, increased logistics costs and higher commodity prices.

So, it is contemplated that markets are heading towards a corrective mode packed with more volatility going ahead in a short time frame but over the mid-term time frame, the growth trajectory is still intact and 8%-10% returns could be made in FY22 from equities markets.

Q) The US Fed Signs 3 rate hikes in 2022 – How will it impact the Indian Markets, bonds and currency?

A) In a policy shift, the US Fed would end its pandemic-era bond purchases in March next year and will raise interest rates thrice next year to battle with rising inflation.

Interest rates hike in the US could trigger global funds pulling out funds from emerging markets (EMs) like India. This development would probably close the foreign liquidity tap. So, it could hurt the sentiments and cause more correction in the Indian markets going ahead.

To counter this, the Indian central bank may raise interest rates to prevent FPI outflows from the Indian bond market.

FPIs outflow of funds from the equity and bond markets could weaken the Indian rupee even as the dollar gets stronger – The dollar index is strengthening.

Q) What are your expectations from Budget 2022?

A) Finance Minister Nirmala Sitharaman is expected to present the fourth budget of the Modi 2.0 government on February 1. Following are the few expectations from the Finance Minister in the FY22 budget session.

Healthcare Spending:

The outbreak of Covid19 has exposed the nation's dwindling healthcare system So, the Indian government has decided to almost double its healthcare budget year on year.

Currently, the Government spends 1.8 per cent of GDP on healthcare and aims to raise healthcare expenditure to 4 per cent of gross domestic output in the coming four years.

As a result, healthcare would be another prominent area of focus in Budget 2022.

Privatisation Drive:

Aiming to boost lending in the economy and improve the valuation of state-run banks before selling stakes in them, the government may be announcing a "bad bank" creation.

As India is likely to aim to raise $40 billion from privatization from various profit-making PSUs companies in the energy, mining, and banking, and selling minority stakes of large companies such as Life Insurance Corp. This is also to be kept on the radar as well.  

Bringing Petrol and Diesel under the GST regime:

If both the commodities could be brought under the GST regime then this would be a masterstroke for the Modi government.

The GST Council met several times to discuss the possibility of bringing petroleum products under the ambit of the indirect tax regime but failed. If the government is able to do this, then it would provide a big relief to the public.

This pro-consumer move would not only bring fuel prices under control but will help in curbing inflationary pressure in the economy and may provide a political advantage as well.

Q) What sectors could be in focus in budget 2022?

A) In Budget 2022, we expect the government to focus on increased spending on priority sectors for instance, Agriculture, Infrastructure & Reality, Healthcare, Manufacturing and Defence.

Growth reforms for achieving the long-term growth goals would continue to be the cornerstone in the upcoming Budget.

Q) As we close the year 2021 – Small & midcaps indices almost doubled compared to benchmark indices. Do you see a similar outperformance in 2022 from the broader market space?

A)  Mid-caps and small-caps outperformed the broader markets on account of two or three factors:

First, they had fallen very sharply earlier.

Second, heighten risk appetite from excess liquidity flowing into equity markets in and

Third, increased retail participation in FY21.

But things have changed now. It is the right time to have a marginal under-weight instance on small and mid-caps because of their stretched valuation and unfavourable risk-to-reward ratio.

Since small caps are high beta, there is a lot of illiquidities built in them and they are more susceptible to growth drawdowns as the economy is going through torrid times. It is not prudent to expect such outperformance from mid to small-cap stocks again.

Q) Which sectors are likely to hog the limelight in 2022?

A)  We believe sectors linked to the investment economy will farewell. Sectors like IT services and digital platform businesses will see exponential growth as well.

Infrastructure & Reality sectors are poised to grow well, Renewable energy & EV theme-based sectors, Healthcare sector, PSUs banking sector, the Defence sector will be in a limelight in FY22.

Q) Any stock or sector that could turn out to be a dark horse of 2022?

A)  Instead of any sector or stock, investors should bet on specific themes one being - Digitalization. The opportunity is huge, and technology is evolving.

Another theme is Electrification. The buzz around is that the theme is very strong and is attracting of probably many big corporates towards this space. A first-mover will get a competitive advantage.
 
Q) What are your views on markets in terms of earnings recovery in 2022, as well as valuations when compared to global markets?

A) In the recently ended September quarter, we have seen sales volumes uptick for most of the Nifty50 companies. Part of the reason for strong earnings growth seems to be due to the base effect.

This base effect could continue in the December quarter, too. Apart from that, corporate commentaries indicate strong demand recovery during the festive season. But gross margins remain a concern for autos, cement, specialty chemicals, consumer staples, and consumer durables on the back of an increase in raw material prices, high energy prices, & increasing logistics costs.

Nevertheless, companies are and have taken price increases to pass on the impact of the raw material inflation to consumers to some extent and may continue to do so going ahead.

On one side, in FY22 earnings growth is estimated to be led by (a) metals and energy, which continue to benefit from demand revival, strong price realizations, and volume growth; (b) BFSI, which has benefitted from asset quality improvement.

IT, Healthcare, Pharma & chemicals are poised to grow. On the other side, auto & ancillaries, consumer, travel & hospitality and airlines may continue to see downgrades.

Q) What are your views on IPOs hitting D-Street? Do you think that there is a general expectation IPO = quick money? How should investors look at investing in the IPO?

A) With IPO frenzy continues to prevail in the primary markets. There is a strong euphoria that still exists in the primary market space as various next-gen businesses for instance are coming in IPO mandi with different business models and commanding different valuations - rather extremely expensive to moderate one.

So the investor has to be rational in respect of allocating funds for any particular IPO.

Even though momentum and buzz in the primary market could lead IPO stocks prices up on the listing day, they may not be sustainable in delivering good returns to investors over a long period horizon due to weak fundamentals and lack of visibility regarding its future outlook.

Profit booking on the listing day is advisable and make some bucks quickly.  

Factors such as peer valuation, uniqueness of the business, the share of fresh fund-raising versus selling of shares by existing shareholders, financial strength, good management, growth pathway, and size of the float should be kept in mind by the investors for investing in IPOs either for a short-term or long-term period.

Q) It has been an exciting journey for retail investors who joined D-Street party investors (1.8Cr Demat accounts as on October 2021). Clearly, there is a rush from retail investors to invest in equities. SIP flows surpass Rs 11000 Cr. What is the trend you foresee for 2022?

A) India witnessed its own version of the Robinhood surge when large numbers of retail investors opened Demat accounts in 2020 (1.8Cr Demat account).

Discount brokerages and an industry-wide shift to online trading had allowed these retail investors to easily start trading easily. Some of them may have minted money in FY21 but FY22 would be a difficult year for them in terms of generating alpha returns.

Even though markets are volatile, investors continued to invest in mutual funds. In November 2021, equity funds saw net inflows of Rs 11,614 crore, up from Rs 5,214 crore in October 2021. Therefore, taking overall industry’s assets to Rs 37.34 trillion as on November 30, 2021.

The number of MF systematic investment plan (SIP) accounts rose to 4.78 crore as on November 30, 2021, compared to 4.64 crore as on October 31, 2021.  

Despite rising uncertainty owing to the feared third wave of the pandemic, and extreme equity market volatility, retail investors continue displaying their overwhelming confidence in the disciplined mutual funds SIP mode.

With increasing financial awareness among people, they are picking up mutual funds over the low returns yielding saving avenues banks FDs, RDs, or Gold.

On the backdrop of improving economic scenario, aided by conducive RBI policy and easing of Covid related restrictions, equities asset class would continue to deliver better risk-adjusted returns moving forward.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)