Dalal Street Voice: India remains a country of choice for FIIs; $10 bn poured into IPOs in 2021 reflects mood: Vinit Sambre of DSP Investment Managers

Vinit Sambre is Head – Equities at DSP Investment Managers said that the most important factor to note is while FIIs have pulled out USD 5.2bn CYTD21 net from the secondary market but they have invested USD 10.4bn in the primary market (IPOs) in the same period, which shows that India still remains a country of choice for FIIs.

Vinit specializes in the small and mid-cap space and has over 20 years of relevant work experience. Vinit joined DSPIM in July 2007, as Portfolio Analyst for the firm's Portfolio Management Services (PMS) division, which manages discretionary accounts and provides advisory services to institutional clients.

Edited Excerpts:

Q) Omicron, US Fed taper fear have infused volatility in markets. Where do you see markets in the next 12 months or so?

A) There is complementary set of news, afloat currently. If Omicron turns out any severe than it is currently perceived to be, growth lag could keep the Central banks globally accommodative for longer.

However, given where we are today, it appears that Omicron is likely to be less damaging, growth recovery will continue, and inflation will remain at somewhat higher levels.

Given these fundamentals, the US Fed could in fact increase the pace of tapering and end the QE a few months before. In terms of market performance, stretched valuations have lasted for almost a year now and could last a little longer but some correction is on the cards due to Fed tapering.

Having said that, we are optimistic on the markets over the next 4-5 years as economy goes through its expansionary phase.

Q) What are your expectations from the Budget 2020? Will it be a populist one that could hurt the fiscal math of the government which is already strained due to COVID?

A) For FY2022, the fiscal situation could surprise positively given higher nominal GDP, buoyant tax collections (INR 2trillion excess), and possibly successful divestment proceeds.

However, given that 7 state elections are lined up in 2022, the government could continue its infra spends, focus on rural economy and therefore the fiscal math is likely to remain tight for the next year.

Successful and timely divestment remains critical which government should take note of. Currently, monetary policy has maintained the status quo.

A coordinated monetary and fiscal action will be good to navigate through rickety recovery and transform it into a broad-based economic recovery.  

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

A) With so much happening on climate and the need for carbon reduction, we would expect a lot of noise around electric vehicles, renewable energy, etc.

Sectors such as auto-ancillary, engineering, renewable power, should see the benefit. Further, the government’s initiative to drive economic growth would mean continuity of infra and rural spending, etc.

This would benefit sectors such as banking & finance, infra, and Agri.

Q) The year 2021 will also go down as a year of IPOs when many niche or new-age businesses got listed. How do you sum up 2021 in terms of primary markets and your outlook for 2022?

A) The IPO steam wasn’t just felt in the domestic scenario - In 2017, India saw USD 15bn in IPOs, but the global number stood at USD 215 bn.

This time, the IPO rally is a huge global sweep with total IPO issuances at a whopping USD 600 bn! Historically, a primary market boom is followed by years of lull or low activity. It usually coincides with low secondary market returns ahead as well.

Q) The year 2021 was a volatile year but bulls managed to remain in control. How do you look 2021 – key highlights which stand out from a market, fund or business perspective?

A) 2021 was a year when the pendulum swung from despair in 2020 to some excesses in 2021. Many sectors began witnessing earnings for the next 3 years being discounted at a fast clip.

When you deviate from the average by a huge margin the return to mean also comes with its fair share of volatility. After October 2021, we have begun to see froth and excesses getting corrected. This is a good sign for long term investors.

Q) FIIs remain mostly net sellers especially when it comes to the cash segment of Indian equity markets. How are FIIs looking at India in the light of sooner than expected tapering from the US Fed?

A) India is an attractive investment destination due to visibility of growth, stable government, material reforms, diversity of sectors, strong foreign exchange reserves, and low currency risk.

These factors stand-out and ensure continuity of FII interest in India. Their recent sell-off must be seen in the context of rich valuations for Indian equities on one hand and rising global risk due to news of Fed tapering, US dollar strengthening, inflation, etc. on the other.

The most important factor to note is while FIIs have pulled out USD 5.2bn CYTD21 net from the secondary market, they have invested USD 10.4bn in the primary market (IPOs) in the same period, which shows that India remains a country of choice for FIIs.

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

A) Banking: We believe the banking sector is one to look at as they are adequately capitalized, have managed the asset quality impact well, and are likely to be beneficiaries of economic recovery going forward.

Engineering Sector: The engineering sector is also likely to be a beneficiary of the Infra spending, PLI investments, and growth in manufacturing which is taking place now.

Healthcare/Pharma sector: Healthcare has been our favored sector as health has assumed priority globally and Indian companies due to their global presence have a much larger addressable market to capture.

Technology: IT sector is also looking positive due to the strong demand environment.

Agriculture: We like agri sector due to the long runway of growth available given the under penetration in the category.

Consumption: The consumer sector both discretionary and non-discretionary are good long-term plays but have rallied ahead of their near-term fundamentals and we would look at them in weakness.

Q) Any particular themes that remained in limelight in 2021 and could remain relevant and in demand in 2022 and why?

A) In 2021, almost everything did well. But a few segments where we feel the demand environment would continue to remain strong is IT, Engineering, and Building Materials.

Digitisation and technology adoption is driving most corporates around to world to allocate more capital towards technology.

Infra spends and focus on manufacturing would benefit engineering companies and improving real estate demand would drive the growth for the building material segment.

Q) What were your key learnings from markets in 2021 which investors should take note off?

A) The most important learning from my experience of the past market cycle is to be fearful when greed takes over, but this has not worked in 2021. Liquidity has been the overpowering factor that has created a bubble zone across many businesses.

Investors should be mindful of their behaviour and not get swayed into popular or fashionable ideas and make sound investments with a long-term view.

Q) What are the key risks that investors may face in 2022?

A) Other than the macro risk, it is the behavioral risk which investor needs to be careful about. Markets have seen linear up move without any drawdowns over the last 1-1.5 years.

This would promote complacency and excessive risk-taking by investors which could ultimately hurt them.

We would advise investors to think long-term (7-8 years) and follow a disciplined approach towards investment.

(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.)