Dalal Street Voice: IT, NBFC, auto, chemicals and textile stocks likely to shine in SAMVAT 2078: Vikas Singhania of TradeSmart

This Diwali will be good for all equity investors’ and we hope it continues to remain the same in the future, and in the next Diwali, we may see a new set of stocks lighting the way forward, Vikas Singhania, CEO, TradeSmart said in an interview with Zeebiz’s Kshitij Anand. Edited Excerpts:

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Q) The market seems to be shaky ahead of Diwali, but with a 30% rally already seen in the Nifty50 – what is your view on the markets?

A) The markets have had a dream run and are consolidating at current levels. This being the earnings season, we are witnessing stock-specific movement and re-alignment of portfolios.

Caution is in the air, mainly from the institutional investors' side - both domestic and foreign. Retail investors continue to be active both in direct equity as well as through mutual funds.

While there are macro-level headwinds ahead for the market in the form of rising oil prices and rising interest rates, valuations are the main concern.

At the current levels, the risk-to-reward ratio in other markets like China and Indonesia is more favourable than India for foreign investors, who are advising their clients to book some profits here.

Q) I am sure everyone would be celebrating this Diwali as most portfolios have turned green. But what are your expectations for Samvat 2078? What should be the investment strategy?

A) This Diwali will be good for all equity investors’ and we hope it continues to remain the same in the future. Next Diwali, we may see a new set of stocks lighting the way forward.

We feel the IT sector will continue to shine, given the strong hiring and the earnings guidance announced by all top companies.

Commodities, especially metals, may face headwinds given the slowdown in China. With the Indian economy opening up, lenders, especially non-banking finance companies (NBFCs), will gain traction.

A low-interest environment in the country bodes well for real estate companies and real estate financiers. Auto companies, who would like to forget the last two years, may see the growth revisiting them as semi-conductor-related issues are resolved.

Further, the scrappage policy announced by the government, along with the leasing route adopted by companies to boost sales, is likely to gain traction in the future.

Chemicals and textile companies will continue to show strong performance and the same can be said for electronic companies, who will also benefit from the PLI (Production Linked Incentive) scheme promoted by the government.

Q) FIIs are selling at a time when the Sensex and the Nifty50 hit fresh record highs. What seems to be worrying FIIs, and is it a sign of caution which retail investors should take note off?

A) The main reason FIIs are exiting is that on a relative valuation basis and risk to reward basis the Indian markets are costly. Most of the top companies in India are trading close to their peak valuations, thus offering limited upside.

FIIs are getting better opportunities in other countries in the Asian sub-continent at a cheaper valuation.

Further, the US 10-year bond is ticking above 1.6 per cent, a sign of rising inflation and possible interest rate in the US. With the US Fed expected to start its tapering, FIIs are worried about their exposure to equities, especially in the emerging markets like India.

Having said that, the impact of FIIs buying and selling has come down over the last year. Average monthly inflows by FIIs are matched by retail SIPs in a mutual fund.

Q) The September quarter earnings remain a mixed bag. What are your views on FY22 earnings expectations?

A) From the initial set of numbers that have been announced, barring a few sectors, most have managed to live up to the market expectations. There were few positive surprises in the banking and technology space, but far fewer than what one would like to see.

Though it is still early days, realigning the numbers based on those companies, which have announced their results, we feel that the Nifty stocks can post an EPS in the range of Rs 720-730.  At these numbers, the Nifty is being discounted at around 25 times, though it is above average, it is not at the previous peaks.

Q) We have seen a strong rally in the small and midcap space and now that the tide seems to be taking a cautious stance. Do you think high beta stocks could come under pressure?

A) Yes, as the market cools down, the first to be affected are the high beta stocks. Investors would like to exit from the most volatile companies. What can change the sentiment for these companies are strong the September quarter numbers.  

The Indian story remains strong and most of these smaller companies cater to the Indian economy. Visibility and guidance can help attract investors to these stocks. But at the same time, if the numbers do not live up to the expectations, there can be a scramble to the door.

Q) International investment bank UBS has already turned cautious on the Indian markets after the recent rally (FIIs are already pulling out money). What are your views on that?

A) Other broking firms are joining UBS in changing their view on India. But if you see, most of these firms are foreign brokerages for whom India is one of the markets. Indian brokerages are still bullish as they do not benchmark India with other countries.

If you are an Indian investor, who only invests in India, there is a little to worry about. There may be small corrections, but the India story is intact and solid. Our golden phase has just started.

Q) What should be an asset allocation for investors for SAMVAT 2078?

A) We will continue to remain overweight in equities. Interest rates are likely to remain low as the government and the central bank are both on the same page as far as growth is concerned. Debt markets would continue to yield lower returns in Samvat 2078.

However, a likely increase in volatility in the global markets can have a rub-off effect on the Indian markets, which would need diversification. Gold can be a good substitute to protect from such a scenario.

Real estate investments, especially in affordable housing, are advisable and can help in booking some profits and in distributing risk.

Q) Which sectors are likely to lead the next leg of the rally?

A) We believe the next leg of the rally will be driven by financials and IT companies. Strong quarterly performance by these companies, opening up of the economy, and strong fund flows in performing companies can drive these sectors higher.

Q)  Do you see another double-digit correction in the rest of FY22? Also, do you think that could have an impact on SIP flows, which crossed Rs 10,000-crore mark a month.

A) A double-digit correction based on internal factors is unlikely based on the current set of data points. However, if at all there is a correction, it could be transmitted from the global markets.

China has recently locked down a city on fears of the Covid spread. The US and the UK are still struggling to control the delta variant.

Further, the US bond yield is a cause of concern. A jump over 1.75 percent can see a fresh round of selling across the globe. Federal Reserves' action will, to some extent, decide the short-term movement of markets.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)