Equities as an asset class is volatile in the short term, therefore, the possibility of a 5-10% market correction in the short-term cannot be ruled out but on a long term perspective I am positive on the Indian equity market, Pradeep Gupta, Co-Founder & Vice Chairman, Anand Rathi Group – said in an interview with Zeebiz’s Kshitij Anand.

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With over two decades of rich experience in financial markets, he has played a pivotal role in laying the foundation of the Institutional Broking and Investment Services arm of the group.

Edited excerpts:      

Q) Omicron, US Fed taper fear infuse volatility in markets. Where do you see markets in the next 12 months or so?

A) Looking at purely from the growth factor perspective, the US economy is set to grow by 5 per cent in Q4 2021 and 3.5 per cent on a y-o-y basis in 2022 and 2.9 per cent on a y-o-y basis in 2023.

The downgrade is mainly due to expectations of a policy rate hike by the US Fed, persistently rising inflation rate and also due to the resurgence of covid-19 cases which may slow consumer spending growth.

When we look at Indian equities, in the last one year, the Indian equity market has been the best performing amongst all major markets of the world.

The Nifty50 rallied 50 per cent and the mid-and small-cap indices have done much better, since April 2020. The Nifty has gone up nearly 150 per cent and the small cap indices by nearly 250 per cent in the same period.

The Indian corporate sector is doing even better than the overall economy. Consequently, the up move of the equity market is in line with the improvements in macro and corporate fundamentals.

Equities as an asset class is volatile in the short term, therefore, the possibility of a 5-10% market correction in the short term cannot be ruled out but on a long-term perspective, I am positive on the Indian equity market.

Q) The Budget 2022 is also a few months away. What are your expectations from the Budget? Do you think it will be a populist one that could hurt fiscal math of the government which is already strained due to COVID?

A) According to the circular issued by the Finance Ministry, the budget exercise has already been initiated by the government. The focus of this year’s budget is expected to be growth-oriented, pragmatic, and on a positive note.

Expectations are that the government will take into consideration the impact of the current ongoing pandemic and focus the budget on the overall growth of the economy.

Q) The year 2021 will also go down as a year of IPOs when many niche or new-age businesses got listed. How do you sum up 2021 in terms of primary markets and your outlook for 2022?

A) Just in the first 9 months of the current year, we witnessed upwards of $9.7bn inflows via initial share sale and a total of 72 IPO’s listed in the Jan’21 to the Sept’21 period, basis a report issued by EY.

Although the inflows were impressive, yet we stood at only 3% of the total funds raised on a global level. Even in the State of Indian Economy report, the RBI said that 2021 could be the year of the IPO’s.

RBI said that India’s tech boom has been in the works for since long, with strong global and domestic demands being built up, the current inflows have taken the benchmarks also to record highs.

RBI estimates India to have about 100 unicorns, with 3 unicorn per month being added this year. The outlook for 2022 continues to remain positive.

Q) The year 2021 was a volatile year but bulls managed to remain in control. How do you look 2021 – key highlights which stand out from a market, fund or business perspective?

A) There has been a significant improvement in the macroeconomic environment in the country with major bounce back in manufacturing, utilities, infrastructure activities, and select segments of the services sector.

Corporate performance during the last 2 quarters has also been better than expected. The recent guidance of the US Federal Reserve indicates that the global interest rate and liquidity situation will continue to remain extremely accommodative, at least for the next 2 years.

In India too, we expect the monetary and fiscal policies to remain accommodative during the next year.

The consensus expectations on earnings growth of Nifty 50 suggest compounded annual growth of over 22% between FY20 and FY23. The consensus expectation is placing FY23 Nifty 50 earnings per share at above ₹800.  

In the last 5 years, the average one-year forward Nifty50 price-to-earnings (PE) multiple has been above 23.

Therefore, while I am positive on the medium to long term outlook of the Indian equity market, this, by no means, imply that the market movement will be unidirectional, in the short term the volatility is expected to continue.

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

A) Macroeconomic policies in India are clearly focusing on stimulating growth through the investment route. The union budget has substantially increased budgetary outlay for public Capex. Budgetary support to the public sector unit for capital spending has also been enhanced.

Under the Production Link Incentive (PLI) scheme, government would provide large monetary support to the corporate sector to undertake investment in certain areas including automobile and auto components, consumer electronics, specialty chemicals and pharmaceuticals, to name a few.

The government has also made the necessary changes to attract more foreign funding including from sovereign wealth fund, alternative investment fund, foreign portfolio investment, etc.

The government is setting up a development finance institution which is expected to extend credit to the extent of ₹5 trillion in the next 3 years.  

In view of all these, I would expect the investment theme to play out favourably in the Indian equity market during the next year. Sectors which are likely to outperform include capital goods, infrastructure, cement and financials including banks.  

Q) Any particular themes that remained in limelight in 2021 and could well remain relevant and in demand in 2022 as well and why?

A) As already mentioned earlier, sectors that are likely to outperform include capital goods, infrastructure, cement and financials including banks.  

Q) What were your key learnings from markets in 2021 which investors should take note off?

A) Investors should consider three major aspect before making any financial decision, which is: risk-taking ability, the time horizon of the portfolio, and return expectations.

This does not and should not depend on the phase of the market and business cycle. It’s the time in the market and not timing of the market that attributes to consistent long term wealth creation.

Also, whenever there is a deviation from the original set asset allocation plan, the investor needs to rebalance their portfolio accordingly.

Equities as an asset class is volatile in the short term, therefore, possibility of a 5-10% market correction in the short-term cannot be ruled out.

At the same time, a continued rally in the equity market is also a distinct possibility, timing the market accurately is not possible.

The consistent and less risky way to make a significant portfolio return is, therefore, to remain invested in the market and not to get unnerved by the possible or actual corrections in the equity market.

Patience and sticking to a well-desired asset allocation strategy are the two most important ingredients in the making of a successful investor. The prevailing market conditions should not influence these decisions.

Q) What are the key risks that investors have to face in 2022?

A) Equity market by nature is volatile. It is extremely difficult to predict the short-term movements of the market and 5-10% market corrections are rules rather than exceptions.  

Such corrections can happen any time including in the near future. This possibility, however, does not change my positive view about the Indian market in the medium to longer-run. Inflation has become a global concern.

The only risk I foresee looming over the market is any geo-political or any unforeseen event-based risk such as the pandemic worsening, natural calamities, etc. which may impact short to medium term period due to a knee-jerk reaction to such events.

Apart from inflation, the RBI is likely to tighten both liquidity and policy rate from the current extremely accommodative positions. We expect that to happen soon and it is possible that equity market is factoring in the same.

Therefore, while I am positive on the medium to long term outlook of the Indian equity market, this, by no means, as mentioned earlier also, imply that the market movement will be unidirectional, in the short term the volatility is expected to continue.

(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.)