Nitin Shanbhag, Head- Investment products of MOPW said that for incremental equity investments, we suggest investing 50% in lumpsum and 50% staggered over the next 3 months.

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Nitin has over 17 years of experience in financial markets and private wealth management. He specialises in product Innovation and developing Portfolio strategies for UHNW and HNW clients based on the prevailing market scenario.

In an interview with Zeebiz's Kshitij Anand, Shanbhag believes that cyclical sectors such as Metals, Cement and Capital Goods are likely to remain beneficiaries of Govt. CAPEX. 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 reaction amid the US Fed hike, but the bulls managed to hold on to gains.

A) In CY21, the Nifty50 index (Large-cap) returned 24 per cent, while CNX Midcap and CNX Small Cap gained 46% & 59%, respectively.

While a significant portion of this return can be attributed to Corporate Earnings growth recovery, it has also been complimented with broad-based re-rating of the equity market.

We believe that on the back of such performance, 2022 is likely to be a year of consolidation with more bottom-up stock-related performance.

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) We believe the government will continue to focus on enhancing capital expenditure.

There has been a significant jump on a year-on-year basis in tax collections in FY22 till date, both from the Direct Taxes & Indirect Taxes. However, there have also been some misses on the projected divestment front.

In aggregate, we feel that the government is likely to overshoot its budgeted fiscal deficit target for FY22.

Q) Which sectors are likely to be in the spotlight in this Budget 2022?

A) The government is likely to build on policy initiatives linked to the investment side of the economy along with manufacturing.

Cyclical sectors such as Metals, Cement, and Capital Goods are likely to remain beneficiaries of government capex.
 
Q) Any stocks, which you think could be in focus (economy-linked or high bets stocks)?

A) Economy-linked stocks could continue to be in focus, however, given the strong performance last year, the return expectation going forward needs to be moderated.

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) Given that there was some recovery in earnings in Dec’20 post the initial phase of the pandemic, there will be some base effect for earnings growth for the quarter ended Dec’21.

For Nifty50 companies, the PAT growth is expected to be 26% YoY, lower than the 36% YoY growth seen in the quarter ended Sep’21.

For 3QFY22, sectors like Telecom, Metals, Retail and PSU Banks are likely to be the top contributors to earnings growth while the laggards could be Auto, Cement and Capital Goods.

The impact of the current wave could be limited in 3QFY22 since most of the restrictions came towards the end of the quarter.

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) Given 2 consecutive years of double-digit returns, and significant gains in CY21, investors need to moderate their expectations for 2022.

The domestic macro environment remains quite resilient. India is likely to be the fastest-growing major economy in 2022.

Within various macroeconomic variables, domestic interest rates are likely to normalize gradually. Given the accretion of forex reserves, India’s external account is expected to remain stable.

For Banks, the bad asset cycle is clearly on its way down. Corporate balance sheet deleveraging has played out well creating capacity to borrow and kickstart India’s CAPEX cycle.

The pick-up in earnings growth is driving a surge in ROEs which creates a virtuous cycle of investments and profitability. Having said this, going forward over the next couple of years, earnings growth, while remaining stable, is expected to moderate.

Valuations are likely to be cushioned by ongoing earnings growth.

For incremental equity investments, we suggest investing 50% in lumpsum and 50% staggered over the next 3 months.

While it is not possible to estimate the increase in Demat accounts, however, the mega-trend of financialization of the economy is likely to augment growth in demat accounts going forward.

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

A) It is always prudent to have geographic diversification of a financial portfolio to participate in innovative global opportunities, especially through International Index Funds.

The case for Index funds is pretty much proven in the US, where almost 50% of the assets managed through that mutual fund industry is covered through passively managed funds.

One of the key reasons for this is information efficiency which is prevalent in US & other Developed markets. This makes it difficult for a global active manager to consistently outperform the benchmark indices e.g. the S&P500, Nasdaq100, MSCI World Index, etc.

Global Index funds are more economical since they do not have the management & operational expenses associated with actively managed funds.

Furthermore, global index funds provide access to global leaders across industries and access to emerging themes or mega-trends.

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

A) Market-cap-to-GDP should never be looked at in isolation but rather relative to a developed economy like the US. Currently, India’s Market Cap to GDP ratio is 1.2X, whereas the same is 2.1X for the US.

Hence, on a relative basis, India looks more attractive and has better economic growth prospects.

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) Companies with good balance sheets operating in renewable energy are likely to be beneficiaries, along with companies involved in battery energy storage systems.

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

A) With a significant portion of the equity market re-rating behind us, we believe CY22 could be a year of consolidation.

For the coming year, some of the potential success mantras could be

-             Keep the emphasis on Investment Charter

-             Stick to long term Asset Allocation

-             Have a disciplined staggered deployment strategy for incremental equity investments without trying to time the markets.

(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.)