Harshad Borawake, Head, Equity Research and Fund Manager Mirae Asset Investment Managers India Pvt Ltd said the Nifty index is currently trading at about 17x FY24E earnings, which is at an aggregate-level small premium to historical averages.

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Borawake has an overall professional experience of more than 17 years across industries like Financials, Oil and Gas, Logistics, and Aviation. Prior to joining Mirae, he was with Motilal Oswal Securities, and Capmetrics & Risk Solutions. Harshad is a Bachelor’s in Engineering and has done an MBA in Finance

In an interview with Zeebiz's Kshitij Anand, Borawake believes that valuations are reasonable given the expectation of 22% earnings growth over FY20–24 as well as the low cost of capital. Edited excerpts:

Q) A strong close for the year 2021 for equity markets – what are your expectations for the year 2022?

A) India’s medium to long-term growth prospects seem to be in place. The key blocks for recovery are (a) low-interest rates, (b) supportive govt. policies and (c) supportive global macros are largely in place.

Reforms like GST, RERA, labour laws, and the recent focus on manufacturing exports are long-term positive factors.  

Historically, we have seen that the markets generally are a leading indicator and the recent rally clearly implies expectations of strong earnings growth.

The Nifty Index is currently trading at ~17x FY24 earnings and in the backdrop of earnings CAGR of ~22% during FY20-24, appears reasonable.

While the jury is still yet out on the inflation, the near-term market performance could be an interplay between the pace of withdrawal of stimulus, any rate action and continuity of corporate earnings growth.

Q) What are your expectations from the Finance Minister on Budget 2021?

A) In the upcoming Budget, one can expect a continuation of growth supportive policies. Capex is likely to remain a focus area as infrastructure development will be critical to make ‘Make in India’ a success.

Last year, we saw some moderation in rural spending and once can expect some reversal in the same. While, on the taxation front, it will be a function of revenue expectations and near-term priorities.

Q) Some of the sectors that did well in 2021 were power and metals, which house some big PSU names as well. Do you think these sectors could continue to remain in focus in 2022 as well?

A) The strong performance for both these sectors comes after a long period of weaker performance in the prior years.

The power stock performance can be attributed to the combination of overall demand recovery, investments in green energy and relatively reasonable valuations at the start of the year.

While the performance in the cyclical sector like metals seem to be driven by strong global demand as COVID restrictions eased, expected production tweaking by China as well as supply chain issues.

It is generally futile to forecast, however, the stock performance will be a function of multiple factors which include - expected earnings growth, management quality, and valuations, among others.

Q) How do you view new-age companies that hit D-Street in 2021. But, when growth looks more lucrative than value – how do you take your pick? Being a value investor – what percentage should one keep in the portfolio?

A) It would be unfair to broadly brush new-age companies as each one would operate in different segments with its own growth prospects as well as unique challenges. For a few companies, the narration has changed from whether the ‘business model will work?’ to how well can they ‘execute & grow?’

At a broader level, clearly, these companies have benefited from COVID-led acceleration in digitization, infrastructure, skilled manpower, regulatory changes, and support among others.

In terms of portfolio allocation, there is no fixed formula and it will be stock specific call depending on our assessment of the value vis a vis the prevailing market cap.

Q) More than Rs 1 lakh cr was raised from primary markets in 2021. What are your expectations from 2022 on the quantum of money and any big companies which you are looking forward to?

A) The Indian IPO pipeline is robust as one can see from the list of DRHPs filed with the regulator and it’s fair to assume primary market activity will remain hectic even in 2022.

It will be difficult to quantify the quantum of money to be raised, but we do look forward to participating in the growth stories subject to valuations.

Q) In terms of asset allocation – how do investors plan their investment journey in 2022?  

A) We would advise investors not to time the market and invest in equities for the long term within their earmarked asset allocation in a disciplined way (based on one’s risk profile).

The staggered investments through SIPs or STPs would remain the best ways to invest in equities.

In the current market context, one can keep higher allocation towards large-caps and hybrid category funds and have a relatively higher investment time horizon for midcaps and any sectoral funds.

Q) Equities delivered many multibaggers in 2021 – do you think 2022 will also be as thrilling for investors look to double wealth outsmarting other traditional asset classes?  

A) Equity market returns are a function of earnings growth, valuation, interest rate, and flows. We believe India is on the cusp of achieving robust growth over the next few years.

The Nifty index is currently trading at about 17x FY24E earnings, which is at an aggregate-level small premium to historical averages.

However, we believe valuations are reasonable given the expectation of 22% earnings growth over FY20–24 as well as low cost of capital.

Q) Where is the smart money moving especially at a time when we have seen 2 back-to-back years of gains in equities?

A) The market has all types of participants with very different investment horizons, so it wouldn’t be prudent to look at one set/ style of investors to make your investment decisions.

Q) What do you do when you are not managing money?

A) To the extent possible, I do try to catch up on reading, travelling, and spend more time with the family.  

(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.)