Investors are looking at rationalisation of LTCG tax slabs. Currently, equity shares are taxed at LTCG rates if held for 1-year, real estate for 2 years and debt funds at 3 years, Abhay Agarwal, Founder & Fund Manager, Piper Serica said in an interview with Zeebiz’s Kshitij Anand.

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“With its demographic advantage, tech adaption, per capita GDP at an inflexion point and rapid formalization of the economy, we expect to see India continue to trade at a premium for a long time,” highlights Agarwal.

Edited excerpts:

Q) Equity markets are likely to end the year with gains of over 20%, despite a volatile first half of December. How do you see market trading in 2022?

A) We expect markets to follow earnings and earnings estimates for the upcoming quarters. If the unlocking of the economy continues, we expect the earnings estimates to be upgraded which should drive the markets upwards and probably above their recent highs.

If the interest rate environment remains benign, as indicated recently by the Reserve Bank of India (RBI), we expect an increase in the supply of risk capital that will inflate all asset prices.

The risks to this upside are an increase in COVID cases or a sharp correction in the global markets due to sharper than expected inflation in the US or a sharp slowdown in China.

Q) The November MF data is encouraging as SIP tops Rs 11000 cr despite benchmark indices closing lower. What is your take on the kind of money pouring in from MFs?

A) MFs will continue to get new money. Indian investors are quite mature now and understand that they should stay invested in equity for the long-term and not react to short term volatility. Even in the sharp decline seen last year the SIP flows were rock solid.

We expect SIP flows to stay strong. We also expect a migration of funds from liquid to balanced or large-cap funds as fixed income investors chase higher returns.

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

A) Consumer internet, platform businesses, and healthcare will be in limelight. There are several new listings that will take place especially in the internet space that will keep investors interested. Platform companies that are using deep tech to provide a platform to buyers and sellers will see solid growth and investor interest.

The domestic healthcare industry will see rapid growth including health insurance due to abysmal penetration right now. The low base will itself create high growth.

We expect residential real estate to also pick up during the year with all-time high affordability, reduction in inventory and low cost of borrowing.

Q) The year 2022 will also put the Budget back in focus. What are your expectations from the Budget 2022? Any particular reform which investors’ are eyeing from a market and economic perspective?

A) Investors are looking at the rationalization of LTCG tax slabs. Currently, equity shares are taxed at LTCG rates if held for 1-year, real estate for 2 years, and debt funds at 3 years.

This needs to be brought at par so that investors are not forced to lock in their investments for bringing in tax efficiency. The trading costs are also high and need to be brought down.

Investors are hoping that the government will incentivize risk-taking through beneficial tax treatments to investors so that it helps in the development of a robust capital market.

The advance tax collections by the government in the current financial year are better than expected which gives the government enough head-room to rationalize the capital gains tax rates.

Q) We are at the close of the year 2021 and markets valuations are not cheap anymore. A lot of global investment banks have also highlighted expensive valuations after the recent rally. How do you see that playing out in 2022?

A) Just like growth stocks are expensive so are growth markets. India is one of the rare large markets where investors can deploy large capital based on an estimated 7% annual GDP growth rate for the next 10 years.

With its demographic advantage, tech adaption, per capita GDP at an inflection point, and rapid formalization of the economy, we expect to see India continue to trade at a premium for a long time.

Long term FPI investors understand this and are not averse to paying a premium for this growth. But, it also means that Indian stocks will not see a P/E multiple expansion in 2022 and the returns will be generated now from an increase in earnings. Therefore, astute stock picking will be key to generating returns.

Q) We saw over 50 mainboard IPOs so far in the year 2021, compared to 14 in 2020. What is the trend that you see for the next year?

A) We expect this trend to pick up if overall markets stay positive. There are a number of Private Equity backed successful start-ups that will come for listing in 2022 as the investors will need to make an exit. This will give exciting investment options to long-term investors.

Q) Do you see more tech-based businesses making their way into equity markets? And which all other sectors could be in focus and prominent companies that could be in limelight?

A) The focus of new listings will be on companies that are using tech to either disrupt existing industries or are creating entirely new industries.

We will see many companies that have survived the high mortality rate of start-ups come up for listing as they end their private journey especially in the B2C space. We are looking forward to companies in the space of Fintech, Edutech, and healthcare tech to list in 2022. The big ones will be Byjus, Ola, Oyo that are already household brand names.

Q) What are your views on the small & midcaps? Do you foresee a year of consolidation in the broader market after the recent rally?

A) India is a growth market and traditionally good stock pickers with patience have made the maximum returns in India. Therefore, we expect mid and small caps to continue to do well.

At the same time, companies that are ripe for transition to the next level i.e. to mid-cap from small-cap or to large-cap from mid-cap will be in focus for rerating.

Q) Govt plans to go big on the Semiconductor business. Which companies are likely to reap the benefit?

A) Govt has shown its intent to grow the domestic semiconductor industry by providing a large incentive of almost USD 10 billion under the PLI scheme. The target is to make India a USD 1 trillion digital economy.

This will not only replace imports but also facilitate exports. Since this is a very capital-intensive business with a long gestation period, requires access to very high-quality manpower and the ability to manage a global supply chain, we expect that large business groups that are already committed to digital businesses like Reliance and Tatas to be prime contenders.

At the same time, smaller independent EMS players like Dixon also may seek to enter this business. We expect that a robust supply chain industry will also develop around the big players.

Q) What is your take on FII outflows? What are they most worried about?

A) FII have been net sellers for the last couple of months in an aggressive manner though the selling seems to be stabilizing now.

One of their biggest worries has been a tapering of liquidity by the Fed including an increase in interest rate which will strengthen the USD against the INR.

Since RBI has already clearly stated its dovish stance, the INR may stay under pressure in the near term. Also, FIIs have been booking profits in a year that has rewarded them well for taking risks.

The valuation premium that India enjoys has also been a factor in taking some money off the table. At the same time, we believe that with its high growth promise FPIs will turn buyers sooner than later.

(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.)