Dalal Street Voice: We expect Rs 1.5-2 lakh cr. more worth of IPOs pipeline in 2022: Rajesh Cheruvu of Validus Wealth

Rajesh Cheruvu, Chief Investment Officer, Validus Wealth said that India had a record number of unicorns in CY21, and most FIIs have chased such companies and been hyperactive in this space.

Cheruvu is a stalwart in the financial services industry, he has an in-depth understanding of the ecosystem and possesses nearly two decades worth of experience. Prior to joining Validus Wealth, Rajesh had a brief stint with Aditya Birla Capital as Head of Research & Advisory.

In an interview with Zeebiz's Kshitij Anand, Cheruvu believes that in CY22 big companies like LIC, GoAir etc. are on the cards. Overall ~Rs. 1.5-2Lakh cr. more worth of IPOs are in the pipeline expected for 2022.

Edited excerpts:

Q) A strong close for the year 2021 for equity markets – what are your expectations for the year 2022?

A) The outlook for the year 2022 broadly remains positive though returns-wise expectations are a bit tempered. Drilling down: Fundamentals should be robust as corporate profitability is recovering and tax buoyancy has been unparalleled.

This quarter, certain corporates have also taken price hikes, further alleviating any profitability concerns due to spiking inflation. GOI's initiatives in the form of PLI announcements augur well.

Liquidity-wise, FPIs have been pumping money into primary markets, potentially indicating their long-term commitments.

However, global central bank tapering amidst the most recent Omicron scare does raise concerns over liquidity support in 2022.

Q) What are your expectations from the Finance Minister on Budget 2021?

A) We expect the government to continue its focus via various initiatives (like PLI) on broad-based sustained investments in the country. Omicron scare could have deterred the investment plans, but the GOI could unveil new efforts to reinvigorate any stalled CAPEX.

At the same time, disinvestments and strategic sales would also be at the center's focus to keep an eye on the fiscal deficit.

Unbundling of the power distribution business is also on the cards with most developed markets. Cryptocurrency and Regulation of Official Digital Currency Bill could also see some form of tabling in the Budget session of Parliament.

Although, the RBI in the latest policy meet has assured of policy support, the focus now will remain on fiscal support in the face of Omicron.

Q) Some of the sectors that did well in 2021 were Power and metals which house some big PSU names as well. Do you think these sectors could continue to remain in focus in 2022 as well?

A) Power and metals could see some interest on the back of any bills passed for the former sector (unbundling etc.).

Metals would be polarized with certain non-ferrous metals like aluminum expected to see evergreen demand in the face of stable supply and, at the moment, declining global inventories.

Apart from these, the IT outlook remains robust as the shift to the cloud has been ubiquitous, and most IT services firms have addressed their supply issue in recent times with an intense round of hiring.

Pharma as well stands in good stead, though, depending on the various pockets within like: pure domestic plays, which entails requiring a brand power, exporters who offer an immense market potential but at lower costs, CDMO players with strong cash flows, hospitals, and diagnostics all have different levers of strong growth.

Q) How do you view new-age companies that hit D-Street in 2021. But, when growth looks more lucrative than value – how do you take your pick? Being a value investor – what percentage should one keep in the portfolio?

A) New-age companies have the promise of explosive growth. However, most of them have strained bottom lines, which can be seen in a good and bad light.

Even currently constrained companies can see good shareholder value creation in the short run, provided they are at the lower rung of sales valuation multiple.

However, some pick-up in earnings needs to be seen for most such companies in the long run. Also, a general shift to the subscription model of revenues would provide more profitable customer lifetime value at a more moderate cost of acquisition through shifting to subscription from in-app purchase models (or others) depending on the bottom-up business-wise analysis.

Q) More than Rs 1 lakh cr was raised from primary markets in 2021. What are your expectations from 2022 on the quantum of money and any big companies which you are looking forward to?

A) India had a record number of unicorns in CY21. Most FIIs have chased such companies and been hyperactive in this space.

For part of 2022 as well, can expect this trend to continue. However, some moderation could be expected should regulators step in and change any investment mechanism in private markets. In that case, some rotation away from private markets back to listed assets might transpire.

In CY22 big companies like LIC, GoAir etc. are on the cards. Overall ~Rs. 1.5-2Lakh cr. more worth of IPOs are in the pipeline expected for 2022.

Q) In terms of asset allocation – how do investors plan their investment journey in 2022?  

A) Investors should stick to their asset allocation involving a fixed core and a dynamic satellite allocation within respective debt and equity allocations. Core allocation needs to be ascertained based on long-term cash flow needs and other financial requirements back discounted to current times.

Satellite allocations can be more dynamic to account for dips in valuations in certain assets to harvest more alpha opportunistically.

Given the ongoing robust growth outlook and expected upward shift in bond and policy yields, see attractiveness in equities over debt. Hence, investors could consider additional tactical allocation in equities.  

Q) Equities delivered many multibaggers in 2021 – do you think 2022 will also be as thrilling for investors look to double wealth outsmarting other traditional asset classes?  

A) Outlook for 2022 is bright from a fundamental's perspective. But from a valuation standpoint, multiples are currently rich, so that returns could be a tad muted compared to 2021.

On the other hand, corporate profitability is on the mend, and liquidity gush should likely remain given evergreen fundamentals of the economy – though central bank tightening globally could have a rub-off on the current accommodative stance of RBI.

On a bottoms-up individual basis, stocks could continue to offer stupendous returns over the broader market. While investors should do adequate diligence to understand associated risks before allocations by themselves or with the help of a professional in identifying such winners in their portfolio.

Q) Where is the smart money moving especially at a time when we have seen 2 back-to-back years of gains in equities?

A) Currently, FPI money is seeing a rotation from listed to unlisted space into India. However, some reversal could happen if regulations change in the unlisted space. There is also much chatter around the new crypto assets, but the security of monies is an issue that the center and RBI are well aware of.

Sector rotations within listed stocks happen short-term from EV themes to Power stocks and possibly to Autos and BFSI. In the long run, IT and Pharma remain potential evergreen sectors.

Q) What do you do when you are not managing money?

A) Outside of work, he enjoys giving back to society. He runs a medical center in his village, provides educational and skill development supplements to children and youth from his village.

He also enjoys an active lifestyle, is a practitioner of Isha Yoga and meditation, loves Carnatic music and loves to spend time with his family and in the village. Last but not least, he is currently pursuing his Ph.D. from XLRI.

(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.)