Dalal Street Voice: Investors should follow a stock specific and bottoms up approach in FY23: Aniruddha Naha
He is the fund manager for PGIM India Flexi Cap Fund, PGIM India Small Cap Fund and PGIM India Midcap Opportunities Fund.
Aniruddha Naha, Head - Equities, PGIM India Mutual Fund said that FY23 should be a very stock-specific and bottoms-up approach year, and we continue to like IT and pharma and see value emerging in financials.
Naha has done his Masters in Finance & Control and has over 18 years of industry experience in the equity and debt market. He is the fund manager for PGIM India Flexi Cap Fund, PGIM India Small Cap Fund and PGIM India Midcap Opportunities Fund.
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In an interview with Zeebiz's Kshitij Anand, Naha said FY23 might be subdued compared to FY22, but it will be a great time to allocate towards equities for long term investments. Edited excerpts:
Q) The Russia-Ukraine war is showing signs of easing out and the impact is felt on equity markets across the globe as well. Is the worst over for India as well?
A) It is difficult to take a call on geopolitical risks and their timings, and hence we wouldn't hazard a guess. There are quite a few macro risks that persist, which one needs to be aware of, including commodity inflation, interest rate risk and risk of a widening current account deficit.
However, we believe these issues are transitory in the short term and we would be cautiously optimistic on the Indian markets in the medium term.
Q) The US Fed rate hike in March and the possibility of six more hikes could fuel risk-off sentiment. Do you see the FII selling likely to intensify in the coming months? They have already pulled out more than Rs 44,000 cr from the cash segment of Indian equity markets?
A) Higher interest rates, if they play out, could see continued money moving out of emerging markets (EMs) to the developed world in the near term and India wouldn't be any different.
The good part about India is that it offers the most diversified themes to invest in, among emerging markets and many of these themes are structural in nature.
Hence, whenever FIIs decide to start reinvesting in emerging markets, India should receive a strong allocation.
Further, DIIs and individual investors have been very active in Indian markets and have absorbed the bulk of the FII selling.
There is still a lot of scope for financialization of India’s savings through equity markets and hence we are not overly worried about the continued exodus of FII money in the short term
Q) Moody’s downgraded GDP forecast for India while JPMorgan downgraded India to Underweight from Neutral. What does the stars foretell? Is there any historic reference?
A) We would avoid predicting markets based on calls given by other agencies. Our belief is that, though the near term looks a little challenging, valuations have corrected to more reasonable levels and in spite of these near-term challenges, India continues to be one of the better growth markets in the emerging market space.
Further, it is one of the fastest-growing economies as well, in spite of the near-term pressures, which should keep India in good stead.
Q) We are in the last month of FY22. How do you sum up the last financial year and expectations of FY23 – for markets, economy and earnings?
A) The last financial year was a great time to be invested in the market. Inflation and interest rates were subdued, the economy was opening up and hence growth looked great, on a low base of FY21.
Except for the last quarter of FY22, the year was a great time to be invested. FY23 starts off, on a challenging environment.
The geopolitical risks have created a lot of uncertainty in the commodity and energy value chains along with other value chains also getting disrupted.
There is a perceptible move away for globalization and the best of low-interest rates are behind. In such a scenario, returns will be more normalized or even subdued compared to FY21/22.
This year should be a year of consolidation, where investors can pace out their investments for longer-term growth opportunities.
The Union budget estimated growth of 8% in FY23 in real terms and 12-13% in nominal terms which is healthy by any standards.
Further, FY23 NIFTY consensus earnings growth at 17-18% appears to be healthy and valuations close to 18x-19x make the risk-to-reward ratio balanced.
Q) What are your top bets (stocks for FY23) and why? What are you buying in your funds?
A) FY23 should be a very stock-specific and bottoms-up approach year. We continue to like IT and pharma and see value emerging in financials.
Though FY23 might be subdued compared to FY22, it will be a great time to allocate towards equities for long-term investments.
Q) Which sectors are likely to be in focus in the next financial year and why?
A) We continue to believe that IT will be a sector that will be the cornerstone of stability in portfolios, given the strength and visibility of earnings. From a defensive perspective, pharma could be a sector that could perform well after a long hiatus.
This will be a year where performance will be driven by stock selection rather than sectoral calls.
Q) The IPO mania which we saw in FY22 has cooled down due to muted trend in equity markets. What are your expectations for FY23?
A) We follow Growth At Reasonable Price (GARP) philosophy while investing and any investment, be it primary or secondary is evaluated on the same criterion.
While we evaluate most IPOs, we have largely shied away from IPOs in recent times. Going forward as well, we would continue to evaluate IPO and if they don’t meet our internal criterion, we would avoid them.
Q) Any big triggers that investors should watch out for in next financial year?
A) Triggers come and go. We wouldn't be looking out for triggers. Our focus continues to be on earnings.
In case the earnings strength continues, we would suggest investors use every dip in the market to get invested for the long term.
Q) The new age stocks took some beating in March and many are trading below issue price. Any word of advice for forthcoming IPOs and how should investors shortlist stocks for investment?
A) As a fund house, we have stayed away from most of the IPOs, barring a couple of them, where valuations were favourable.
Every IPO should be evaluated based on the fundamentals of the company and the valuations the IPO comes at. As a fund house, we assign a lot of weightage to the fundamentals as well as the valuations.
Q) Your take on international investing in FY23?
A) International investing is an asset allocation call, which helps in diversifying from Indian equities. Being an asset allocation call, these are long-term calls and one shouldn't take a single-year view on it.
We believe, some amount of diversification (moreover with dollar investments) helps in the overall construct of the portfolio and given investments.
(Disclaimer: The views/suggestions/advice 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.)
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