Mitul Shah Head of Research – Institutional Desk Reliance Securities Ltd expects the Nifty50 to enjoy premium valuation for the next 1-2 years on the back of higher earnings CAGR (before reaching a stable earnings pace of growth), as India becomes a preferred destination for global manufacturing, going ahead.

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Shah has over 17 years of work experience in the industry. He has been actively tracking auto and auto Ancillary companies for the past 11 years as a Lead Analyst.

Indian equities are likely to outperform with double-digit returns, Shah said in an interview with Zeebiz's Kshitij Anand. Our year-end 2022 target for Nifty50 is 20,000 at 22x FY24E earnings. Edited excerpts:

Q) RBI's dovish stance and status quo on interest rates was a welcome surprise for markets. What rate trajectory do you foresee in near future?

A) The MPC [Monetary Policy Committee] kept the key policy rates unchanged and maintained its focus on the economic growth revival by continuing with the so-called ‘accommodative’ stance.

During an accommodative monetary policy, a rate hike is ruled out. The policy is largely a non-event for markets and only suggests the continuation of the growth-supportive policy stance.

The central bank sees inflation below 5% for FY23 is a key positive which was cheered by the market on that day.

Q) The Indian market picked up momentum post Budget 2022 after initial US Fed jitters stabilized. What are your views on markets for 2022? What will be the next trigger for markets?

A) The market welcomed the bold CAPEX-oriented budget and reacted positively post the announcement. However, FPI outflow continues to impact near-term performance and exert pressure.

Going forward we expect this volatility would settle in the next 1-2 months and FPI inflow would begin in FY23. We expect Indian equities to outperform with double-digit returns. Our year-end 2022 target for Nifty is 20,000 at 22x FY24E earnings.

We expect Nifty to enjoy premium valuation for the next 1-2 years on the back of higher earnings CAGR (before reaching a stable earnings pace of growth), as India becomes a preferred destination for global manufacturing, going ahead.

This trend would continue over the next 4-5 years, supported by the China+1 policy and the government’s support for various industries.

Q) Budget 2022 was focused on boosting growth – do you see sectoral rotation taking place? Which should long-term investors focus on?

A) The pro-growth Union Budget was on sustaining growth momentum and job creation. The finance minister tried to ensure all necessary measures to support development activities by sharply increasing capital expenditure by 35% for FY23E, along with a higher allocation for infrastructure projects.

PM GatiShakti is a transformative approach for economic growth and sustainable development. The approach is driven by seven engines, namely, Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure.

All seven engines will pull forward the economy in unison. We expect the long-term focus to shift on cyclical including capital goods and Infrastructure from defensive sectors like FMCG.

Most importantly, Rs195bn of additional allocation for PLI for manufacturing high-efficiency solar modules has been provided. This would create new-age infrastructure for green energy and EV ecology over the next decade. We believe that renewable energy and EV ecology would be themes of the next decade.

Q) Which theme will dominate markets in 2022 – value or growth? We saw a lot of liquidity chasing many mid and small-cap stocks in 2020-2021 to tap growth. What are your views?

A) While the government has focused on sunrise sectors with due importance to support climate change, it received the maximum allocation. Renewable energy, electric mobility, and infrastructure development have received the maximum attention.

The government would frame a Battery Swapping Policy to allow EV charging stations for automobiles as a step towards rapid electrification.

Besides, the private sector will be encouraged to create sustainable and innovative business models for battery and energy as a service, improving the efficiency in the EV ecosystem.

All these initiatives would support small and medium-sized companies going forward. Therefore, we expect midcap to outperform large-cap in 2022.

Q) Crude seems to be on the boil. What is your call on the commodity market in 2022?

A) We expect commodity prices to remain firm over the next 3-4 months amid high-level uncertainty globally and demand-supply mismatch.

However, going forward by mid FY23, we expect commodity prices to soften and correct from the current high levels. Such a record high level of commodity prices is not sustainable.  

Q) Given the government's focus on pushing CAPEX are there sectors which are poised for re-rating

A) Government's focus on CAPEX and investments could lead to re-rating in the capital goods and infrastructure sectors.

Most importantly, Rs195bn of additional allocation in PLI for manufacturing high-efficiency solar modules would support the renewable energy sector.

Q) Any new age developing themes that investors can look at for the next 2-3 years? And the ones which one can avoid amid high valuations?

A) We expect new age sunrise sectors with due importance to support climate change to receive the maximum allocation which is likely to outperform the market going ahead.

Renewable energy, electric mobility, and infrastructure development have received the maximum attention.

On the other hand, few recently listed unicorns and new-age technology-based companies are trading at stretched valuations despite recent price corrections.

(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.)