Jyotivardhan Jaipuria, Founder & Managing Director of Valentis Advisors Pvt. Ltd said that India generally trades at a premium to emerging markets with the average PE premium being around 40%.

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Jyoti has 35 years of experience in the Indian Capital Market including 21 years in DSP Merrill Lynch and 8 years in ICICI. Prior to founding Valentis, Jyoti was Head of Research and strategist for India at Bank of America Merrill Lynch.

In an interview with Zeebiz's Kshitij Anand, Jaipuria said that India is currently trading at almost double its premium to emerging markets. Edited excerpts:

Q) What is your call on markets ahead of Budget 2022?

A) After a sharp rally seen over the past 18 months, we think that the markets will be more volatile and in a consolidation range. Overall, for the year, we expect a positive return but could see bouts of correction in line with global markets.

Central banks, especially the US Fed, are likely to tighten monetary policy and raise interest rates to control inflation. The US Fed will a bigger driver for markets than the budget over the next few months.

Q) What are your expectations from Budget 2022? Do you think the government will be able to meet its divestment target?

A) The government disinvestment target is critically dependent on the LIC IPO and all efforts are being made to complete it before the end of the fiscal.

However, tax collections have been positive and will likely exceed budget estimates providing some flexibility to the government.

On a big picture basis, we do not expect any material changes in tax rates in the budget. But we think the government will increase its capital expenditure in order to maintain the momentum in the economy.

This is especially critical since monetary policy may start normalizing and interest rates may start inching up.

Q) Which sectors are likely to grab the limelight in this Budget 2022?

A) We think the thrust of the budget will be to increase capital expenditure to maintain growth momentum in the economy.

Hence, sectors like cement, infrastructure and select capital goods will continue to see interest. Defence companies will be another area of interest.

Q) December MF data was quite encouraging especially from equity funds perspective. What is the kind of number you foresee for SIP, which has already clocked Rs 100 billion?

A) The SIP has been an attractive option for many investors. We see this number going up secularly as it offers an easy option for investors to save regularly from their income. It also ensures that investors are invested in both down as well as upcycles.

Q) In terms of valuations, how are we placed among the Emerging Markets?

A) Valuations are expensive relative to other emerging markets. To put this in context, India generally trades at a premium to emerging markets with the average PE premium being around 40%. India is currently trading at almost double this premium to emerging markets.

Q) What are your top investment themes for 2022 and why?

A) We think 3 themes will play out (a) With the tightening in central bank monetary policy, we think domestic plays will do better than global plays.

With the government likely to increase capital expenditure, the infrastructure sector will be in limelight (b) Hopefully, Covid eases as we progress in the year leading to pent-up demand in sectors like hotels, airlines and movie halls (c) China + 1 will continue to be a secular theme though some stocks have priced in a strong growth already.

Q) Do you think the election outcome will have any bearing on Indian markets?

A) The state elections have generally not changed the market direction and we think this time will be no different.

Q) Renewable and EV became popular themes in 2021 – how do you see the trend in 2022 and which companies are likely to benefit from these themes?

A) Renewables and EV are long-term themes are the next 10 years and the theme will slowly play out in the next few years. Some auto ancillary names and power companies would be good ways to play this in the long term.

(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.)