Electric Vehicles (EV) as a segment in the auto sector is expected to see an additional boost in the forthcoming budget. Especially in the EV charging infrastructure segment we could see specific sops from the government, Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance said in an interview with Zeebiz’s Kshitij Anand.

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"We expect that the Budget would be more growth-oriented with emphasis on sectors like Manufacturing, Healthcare, and infrastructure, which may eventually translate into more job creation," says Reddy.

Edited excerpts:-

Q1. The first half of December has been a volatile one, but equity market will be able to close the year with gains of over 20%. How do you see market trading in 2022?

A) Despite COVID-led lockdowns, global inflationary pressure, and higher crude oil prices, Indian equity markets have been witnessing an upward trend—helped by continued liquidity supply, strong corporate earnings, and broad-based economic recovery.

The overall demand scenario seems to be improving which is implied by various high-frequency economic indicators and recent Q2FY22 corporate earnings.

Even though the market would face the challenges of liquidity withdrawal and interest rate headwinds during the next year, we believe that the earnings growth momentum will be sustained in FY22 & FY23.

However, due to the new Omicron COVID variant, third-wave-related worries are very much on the table. It is still uncertain what will be the magnitude of the impact of the same and thus may lead to some short-term volatility in the market.

However, considering that a large part of the adult population has already got vaccinated and given the strong earnings outlook, it is unlikely that there will be any deep market correction.

Market dips, if any, should be used as a buying opportunity by the investors as per their individual risk profile.

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 into MFs?

A) With the gradual increase in economic activity, robust earnings recovery, investor confidence has been increasing quite significantly which can be seen in the recent 51 per cent YoY jump in SIP inflows.

If you see FYTD22 (Apr-Nov), the MoM inflows kept on rising, from Rs 8,569 Cr. April’21 to Rs 11,005 Cr. in November'21 which is a 28% increase.

Equity market outperformance, low-interest rates (Negative Real Interest Rate), have boosted investors' sentiments and lead to rise in inflows into equity funds.

In recent years, investment through SIP has gained traction; increased financial literacy, market performance, investment flexibility, availability of various investment options, and awareness are the most popular reasons behind this sustained growth.

It is worth mentioning that the SIP inflows from Tier 2 & Tier 3 cities are also encouraging, they are now growing contributors in overall SIP flows.

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

A) We are positive on select banks, metals, IT, and capital goods sector. New-age digital businesses are also gaining traction and have received strong investor responses via IPOs in recent months.

With the economic recovery, we expect credit growth to gradually pick up and asset quality issues to be largely behind us.

The banking sector has handled the asset quality stress well amidst the pandemic and has been supported by moratorium/liquidity measures.

Most of the banks have also been very well capitalized to absorb any shocks, and also valuations remain reasonable for the sector.

The metals sector has benefited from a sharp rise in metal prices, which has helped drive profitability. Also, metal companies have been able to use this uptick in earnings to deleverage their balance sheets, which has been an investor concern for the sector earlier.

With the economic recovery, we expect CAPEX cycle is expected to recover gradually, led initially by public infrastructure spending. We also expect the government’s PLI scheme to provide a boost to domestic manufacturing.

Q) What are your expectations from Budget 2022? Any particular reform which investors’ are eyeing from a market and economic perspective?

A) We expect that next year budget would be more growth-oriented with emphasis on sectors like manufacturing, healthcare and infrastructure, which may eventually translate into more job creation.

Electric Vehicles (EV) as a segment in the auto sector is expected to see an additional boost in the forthcoming budget. Especially in the EV charging infrastructure segment, we could see specific sops from the government.

With both direct and indirect tax collections picking up, we expect that the government to be able to achieve its budgeted fiscal deficit target for FY22, albeit missing the budgeted divestment revenue target (as per the current run rate).

The government has already announced the National Monetization Pipeline, PLI schemes, and increased outlay for capex, and thrust for the same may continue going forward in this budget as well.

Q) Govt plans to go big on the Semiconductor business. Which companies are likely to reap the benefits?

A) The Indian government has announced an Rs 76,000 crore incentive programme for setting up the manufacturing and design units of semiconductors over the next 6 years.

 In a way, this supports the manufacturing sector under the ‘Make in India’ initiatives through various PLI (Product Linked Incentive) schemes which is indeed positive for providing a fillip to domestic manufacturing.

Due to the shortages of semiconductors worldwide, it was a need of the hour to not only diversify the dependence of such critical components but also utilize this as an opportunity to become a supplier.

However, expanding such capabilities and garnering large investments in this segment could take some time. Semiconductors are being used in almost all types of electronic units from Auto to consumer durables.

Supply-side disruption has been a challenge globally and therefore India could play a greater role in this segment by expanding domestic manufacturing and thereby helping to reduce import dependence to some extent.

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 about expensive valuations after the recent rally. How do you see that playing out in 2022?

A) Yes, valuations are quite elevated with the sharp market rally. However, corporate earnings have been quite a positive surprise amidst the pandemic.

In FY21, we saw that India's GDP contracted by 7.3% but Nifty EPS grew by a healthy 18%, against earlier expectations of around 10% contraction in earnings growth.

Despite the second wave, the earnings for FY22 and FY23 have not seen any significant downgrades and are anticipated to grow by 25% and 20% respectively.

Therefore, this uptrend in corporate profitability cycle, helped by cost-cutting initiatives by corporates have contributed to the positive market sentiment and rally, besides the global liquidity surge making its way into capital markets.

Economic recovery has also been better than expected and the festive season provided further fillip to growth and consumption. In the short term we could see some market volatility due to Fed taper, rising inflation and commodity prices.

However, we believe that any market correction may not be as deep as seen in March 2020. The long-term India growth story remains intact with India remaining a preferred investment choice among peer emerging markets.

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

A) With a strong investment appetite in India on the back of robust earnings and economic recovery we expect the IPO pipeline to remain strong in the coming year as well.

Plus, we have some large upcoming govt/PSU IPOs like LIC etc. The recent trend that we observed is the surge in new issuances by new-age tech businesses compared to the traditional corporates.

Going forward, we expect this trend to continue with the favourable policy support from the government and increased digital adoption in India.

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) From a market cap perspective, we presently prefer the large-caps over the mid/small-cap segments, with the valuation premium of the latter widening due to the sharp rally this year.

To some extent, there are still some pockets in the mid/small-cap segment which seem promising to us but from an investor perspective, we recommend higher allocation towards the large-cap segment at this juncture.

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

A) FII outflows are majorly on account of the US Federal Reserve’s plans to taper the massive stimulus and eventually it will lead to hike in rates.

It will narrow down the interest rate differential between the US and emerging markets (EMs) like India, strengthen the dollar— and thereby may lead to some outflows from emerging markets (including India).

However, some of the macro-economic indicators in India are better placed than during the US Fed taper tantrum in 2013. For example, the current account deficit for FY23 is projected at 1.5% of GDP vs a high current account deficit of 4.8% of GDP in FY13.

Forex reserves are presently at a record high of more than $600 billion (indicating an import cover of 13-15 months) versus reserves of around $300 billion in 2013 (when import cover was around 6 months). Inflation presently is also much more moderate than the high levels of 9-10% inflation seen in 2013.

(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.)