The U.S. Fed will have a significant impact on emerging markets including India once FIIs start the portfolio reallocation towards safe havens which includes developed economies like the U.S., U.K. and European nations, Ankit Agarwal, Managing Director, Alankit – said in an interview with Zeebiz’s Kshitij Anand.

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With over 11 years of experience as a visionary entrepreneur, Ankit has been leading business operations in multiple sectors from high technology to the Government and Fintech sectors.

Edited excerpts:  

Q) Another year of double-digit returns for investors when benchmark indices might close with gains of over 20%, each beating fixed income instruments, hands down. What is your view of markets in 2022?
 
A) Due to the pandemic, the last 2 financial years can be considered as an anomaly across the world. Globally, all central banks and governments have provided unprecedented monetary and fiscal stimulus for economic revival and to contain the impact of Covid.

These measures along with excessive liquidity, benign interest rates, and huge pent-up demand have catapulted the profitability of maximum companies.

But now the glory has started to fade away as the above factors have led to demand-pull hyperinflation which is further spooking the central bankers.

The US Federal Reserve had already suggested the most hawkish policy in years, and the Bank of England had increased the interest rates while others are expected to follow suit.

Q) The US Fed signs 3 rate hikes in 2022 – how will it impact Indian markets, bonds, and currency?
 
A) Market Impact-

The U.S. Fed will have a significant impact on emerging markets including India once FIIs start the portfolio reallocation towards safe havens, which includes Developed economies like the U.S., U.K. European nations.

Though we aren’t completely immune to the US Fed’s action and other global changes, compared to 2013, the Indian Economy is better prepared for tapering and similar external challenges.

Within the last few years, the Government has introduced some important changes and systemic economic reforms in the composition and focus of our economy that includes GST, Disinvestment/Divestment from non-strategic sectors, dedicated Freight Corridors, PLI scheme for manufacturing (especially for semiconductors, IT hardware, mobile devices, LED display), RERA, Single Window clearances for Greenfield Investments, Financial inclusion initiatives, Startup ecosystem development, etc.

All these initiatives will have a far-reaching trickle-down impact across the economy by increasing investment, consumption, and exports.

It makes us more resilient and well-equipped to surmount major external shocks. Macroeconomic indicators of the Indian economy are quite stronger now and provide a sustainable long-term growth outlook.

Bonds-

Bond yields decline when the interest rate rises. Markets are forward-looking in nature and have already priced in the interest rates hikes. But it will be interesting to see the quantum and frequency of rate hikes by RBI.

Currency-

Indian Rupee is expected to depreciate in 2022 once CAD-Current Account Deficit will start rising due to increased imports of Crude and Commodity at high prices.

Q) What are your expectations from Budget 2022?
 
A) The Budget 2022 needs to focus more on job creation by more private and government participation, investments into infra, manufacturing and other labor-intensive sectors having higher backward and forward economic integration.

It is imperative to provide enhanced emphasis on economic revival and sustainability for generating more employment opportunities to channelise the full potential of the young population. However, this can only be achieved when the government provides the apposite support clubbed with inclusive growth.

A further boost can be given by incentivising real estate purchases, alternative fuels, and tax slab improvements. Corporates must be given more tax incentives to increase their focus on R&D.

Indian economy needs to reallocate the resources to develop a more conducive Startup ecosystem, especially for the MSMEs. Important changes are required in the education system to support and encourage entrepreneurship.

Nonetheless, it is imperative to focus on spending more on the developing industries which will generate further demand.

Q) Which sectors could be in focus in Budget 2022?
 
A) Healthcare, electric mobility, infrastructure, real estate, logistics (especially Multimodal Transport Operators), alternative energy technology, fintech, and manufacturing sectors will get preferential treatment to boost trade and commerce that will further contribute to the reduction of unemployment, social inequality, health, poverty and climate change issues.

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) 2022 will see a stock-specific action, unlike the broader rally that we saw across the indices. It will be very difficult for most companies to sustain the profitability margins once RBI starts increasing interest rates. Important policy actions directed by FED and other Central Banks will lead to significant turbulence across the markets. There will be opportunities to buy ‘Consistent Compounders’ at an attractive valuation.

In 2022, one must be very cautious in terms of portfolio allocation. Barring a few fundamentally strong companies, others will have a tough time. Therefore, adhering to a Top-Down stock selection approach will be more prudent.

Q) Which sectors are likely to hog the limelight in 2022?
 
A) Some sectors will benefit from a strategic shift in Consumption Patterns. Telecom, IT, Healthcare & Wellness, electric mobility, insurance, and selective financials will be amongst the biggest beneficiaries of Indian GDP growth.

Q) Any stock or sector that could turn out to be a dark horse of 2022?
 
A) Fintech and Life Sciences theme could do exceptionally well.

Q) What are your views on markets in terms of earnings recovery in 2022, as well as valuations when compared to global markets?
 
A) Stock valuations have reached extreme levels across the sectors. Some correction is expected to happen that will bring down the P/E ratio equivalent to the intrinsic value of stocks.

Q) What are your views on IPOs hitting D-Street? Do you think that there are general expectations that an IPO = quick money? How should investors look at investing in the IPO?
 
A) Baring a few good companies, most other IPO’s are just trying to cash in the rising markets which are quite alarming in nature for retail investors. It is wise to invest only in companies that have strong fundamentals, reasonable valuation, and sustainable business models.