Dalal Street Voice: Focus on IT and Pharma as they are immunised from lockdowns: Somnath Mukherjee of ASK Wealth Advisors

Somnath Mukherjee - Managing Partner & CIO, ASK Wealth Advisors said that IT and Pharma are immunised from lockdowns, and the biggest impact of extended lockdowns is on non-tradable, there aren’t too many of them in the index.

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In an interview with Zeebiz's Kshitij Anand, Mukherjee believes that quality stocks with visible earnings growth (and not necessarily macro plays) would be in favour, as they are least susceptible to valuation correction on monetary policy changes. Edited excerpts:

Q) What are your views on markets in 2022 after over 20% gains in the previous year? We have already seen some knee-jerk reactions amid the US Fed hike, but the bulls managed to hold on to gains.

A) There are enough tailwinds still in place in the global macro. Discretionary savings in Developed Markets (DM) are still high and will sustain a fairly robust level of global consumer demand.

In India, consumption is weakening at the margin over the last couple of months. Recovery will depend quite a bit on how the Omicron effect pans out.

However, exports are strong and expected to remain robust as DM consumption remains strong.

Monetary tightening is a risk to some of the elevated valuations – somewhat truer for private markets than for listed stocks – but select high-quality companies will continue to command investor demand.

Q) What are your expectations from Budget 2022 from the finance minister? Do you think the government will be able to maintain the fiscal deficit target?

A) While higher government expenditure would be a natural expectation given the weakness in private consumption demand, it’s not clear if the government will be willing to sacrifice the fisc. too much.

Given robust direct and indirect tax collections, even accounting for some slippages in divestment numbers the fiscal numbers should be comfortably met. As would be the glide path to normalisation of the fisc.

Q) Any stocks which you think could be in focus (economy-linked or high bets stocks)?

A) Quality stocks with visible earnings growth (and not necessarily macro plays) would be in favour. They are least susceptible to valuation correction on monetary policy changes.  

Q) How do you see India Inc. faring in the December quarter earnings? Will it get impacted by the restrictions as well as curfew imposed in various states of India?

A) The December quarter anyway is pre-Omicron, so limited impact of lockdowns. But even thereafter, the headline index companies should not be too adversely impacted. About 35-40% of manufacturing revenues are from exports, and that continues to do well.

IT and Pharma are immunised from lockdowns. The biggest impact of extended lockdowns is on non-tradable, there aren’t too many of them in the index.

Q) What should retail investors be prepared for in 2022 – amid rising in valuations, 2 straight years of double-digit gains, as well as macro-environment? Do you see a similar rise in Demat accounts as we saw in 2021 in 2022 as well?

A) Volatility will be a constant companion.

Q) If US Fed plans to hike rates in 2022 then should one add more international funds, stocks, ETFs to their portfolio?

A) Yes. Monetary policy is ephemeral. International investments are (or should be) long term, structural parts of portfolios. Indians are quite under-allocated to international assets.

Q) Market looks overvalued from the Warren Buffett indicator (Mcap to GDP). Does this ring a warning bell in the minds of investors?

A) It’s a somewhat faux indicator. M-Cap depends on interest rate regimes as much as earnings. Multiples are naturally higher when US 10 years is @ 1.7% vs periods when it was/can be 4 or 5%.

Valuations are stretched no doubt, but the larger profitable companies are also growing earnings at a blistering pace. Not a really key indicator to monitor.

Q) The second phase of the Green Energy Corridor of the Intra-State Transmission system has been approved at a cost of Rs 12,000 crore by the Union Cabinet. Which sectors are likely to get the benefit from green energy?

A) It’s early days yet. Government programmes take time to take effect on the ground. But renewables as a sector – across energy, the EV ecosystem, solar manufacturers – are expected to benefit in the medium to long term as India makes the pivot towards a greener energy mix.

Q) Any top 3-4 success mantra for retail investors for 2022?

A) Time, Time and Time – time in the market is a lot more important than timing the market.

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