Dalal Street Voice: Limelight in Budget 2022 could be on the infrastructure sector, says Dr. Joseph Thomas of Emkay Wealth

The accent on infrastructure will continue to be high, and there could be some major announcements in this regard. The disinvestment plan is likely to become clear in the near future and the glide path to fiscal consolidation also is eagerly awaited, Dr. Joseph Thomas, Head of Research at Emkay Wealth Management said in an interview with Zeebiz’s Kshitij Anand.

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"Since the Indian economy is fundamentally sound and robust the economy should register growth and therefore, staying invested pays," highlights Thomas.

Edited excerpts:

Q) The first half of December has been a volatile one, but the equity market will be able to close the year with gains of over 20%. How do you see market trading in 2022?

A) The equity market has been volatile in the last few months mainly due to the predominant influence of global factors rather than domestic factors.

The tapering of bond purchases by the US Fed ad the rising inflation in many countries has created an environment that supports higher interest rates. These factors have led to the exit of foreign investors from the domestic market.

This is very typical of overseas funds some of whom look for higher returns in the emerging markets during a phase of easy liquidity and exit the markets when conditions start changing.

Since the Indian economy is fundamentally sound and robust the economy should register growth and therefore, staying invested pays.

We should not be under the impression that the returns which were made in the last couple of years will continue to be available. With the normalisation of liquidity normalization of returns would also happen over the coming year.

Q) The November MF data is encouraging as SIP tops Rs 11000 cr despite benchmark indices closing lower. What is your take on the kind of money pouring in from MFs?

A) The money which comes into the mutual fund through SIPs, is retail money, and they come in for a pre-determined time period like 12 months or 24 months, etc.

These are long-term investments. But that does not mean that they will continue to invest whatever be the situation. There were occasions in the past when the market was in a bearish grip for a considerable time and SIPs were cancelled or closed.

But this time around it is a bit different. Large as well as small investors have moved into investments in a phased manner to avoid the event of investing a lump sum, at quite high levels on the index, from where corrections could happen. This move into a phased or graduated mode is what is happening now  

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

A) The sectors which have been in the limelight in the last year are pharma and healthcare along with technology. These will continue to remain in limelight because of their relevance to life and economy at a much deeper level than it was a couple of years back.

Healthcare shot to prominence due to obvious reasons of relevance and peculiar circumstances, and technology mainly from enhanced digitization and the fast economic recovery that is happening in the US and Europe which is directly relevant to all major tech companies.

What may come into sharp focus hereafter would be financials, realty, and housing fiancé companies. The uptick in realty is something that could positively impact many allied businesses    

Q) The year 2022 will also put the Budget back in focus. What are your expectations from Budget 2022? Any particular reform which investors’ are eyeing from a market and economic perspective?

A) The accent on infrastructure will continue to be high, and there could be some major announcements in this regard. There may not be any incentive that will be offered to investors or for the markets as such.

The disinvestment plan is likely to become clear in the near future and the glide path to fiscal consolidation also is eagerly awaited.    

Q) We are at the close of the year 2021 and markets valuations are not cheap anymore. A lot of global investment banks have also highlighted expensive valuations after the recent rally. How do you see that playing out in 2022?

A) When we look at valuations, it could be seen from a standalone basis or from a relative basis. On a standalone basis, the domestic market valuations seem to be reasonable and fair.

This is because of the fact the economy is expected to register robust growth, and therefore, earnings too. While there may be many a slip between the cup and the lip, the markets have been busy pricing in future earnings quite aggressively.

Whether the market will be able to maintain these valuations would also depend on a number of factors some internal and some external.

For example, a factor like the oil import bill which moves up or down impacts many things like the domestic price level, the interest rate, the currency level, the cost of funds for the medium and small enterprises, etc.

On a relative basis, the domestic market looks more expensive compared to the other emerging markets. This may get corrected to a certain extent as those markets are invested into and they rise.

Generally, in and around the tapering of bond purchases or liquidity normalization, markets correct, and they tend to be cheaper. Market like China faced a whole lot of issues from excessive-tech regulation to real estate payments issues, and the market cheapened up.

The foreign investors could start coming back in the second half of the next calendar year once the details of US policy action become more concrete.

Q) We saw over 50 mainboard IPOs so far in the year 2021, compared to 14 in 2020. What is the trend that you see for the next year?

A) The trend of more companies approaching the capital markets for funds will continue to be a feature of the markets.

But the numbers need not necessarily be the same all the time. This is because those entities who are coming into the markets would like to place their offering at the most opportune or appropriate time to get the best reception to the new issue resulting from an overall positive sentiment.

That is why, when the market is in a bull phase, the number of such offerings is on the higher side.

Q) Do you see more tech-based businesses making their way into equity markets? And which all other sectors could be in focus and prominent companies that could be in limelight?

A) A number of internet-based businesses came into the markets in the last year and got listed too. Yes, more internet-based or tech-based businesses may come into the market, and it is a trend that may stay here for a while.

It is because of the fundamental changes that are happening to the way we deal and transact and go about doing our business

Q) What are your views on the small & midcaps? Do you foresee a year of consolidation in the broader market after the recent rally?

A) Significant growth will come from midcaps and small- caps but the level of risk too will be much higher compared to large caps. The stock selection becomes more important as we move beyond the top 150 or 200 stocks.

Therefore, it is important that the investor goes with a portfolio that is well designed and has a good track record.

If you look at the expansion of market capitalization in the last three to four years, it is quite evident that consistent expansion of market capitalization over various time periods happened in large caps while in mid-caps and small caps it was not as consistent as it was in large caps.

Therefore, large caps provide much better stability to a portfolio. Therefore, the return expectations from midcaps and small caps should be higher compared to large caps.

That is even more reason to go with a portfolio of stocks with an established track record. Those who wish to be in all the market caps could consider multi-cap funds or Flexi-cap funds too

Q) What is your take on FII outflows? What are they most worried about?

A) The FII outflows will keep happening for some more time, and it could normalize by the second half of CY 2022. The FIIs are not that much worried about any local economy or market developments but guided more by factors that are global in nature.

The tapering in the US, rising inflation, the likelihood of rising yields, and the depreciation of local currencies against the US Dollar are factors that may modify their portfolio strategy.

But, India being one of the regions of robust growth and stability may attract external investors after we have more clarity on the direction of US policies.

(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.)