Mitul Shah Head of Research – Institutional Desk,  Reliance Securities Ltd believes that India is better placed compared to major global economies in terms of handling Covid and its spread, while the revival of CAPEX and higher growth potential over the next 1-2 years would boost the expansion of Indian economy ahead of many other nations.

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Shah has over 17 years of work experience in the Automobile domain. He has been actively tracking Auto and Auto Ancillary companies for the past 11 years as a lead Analyst.

Edited Excerpts:

Q) Another year of double-digit returns for investors when benchmark indices might close with gains of over 20% each beating fixed income instruments hands down. What is your view of markets in 2022?

A) At the beginning of the fiscal, we predicted a Nifty50 target of 16,300, which is already surpassed. We are in the process of revising it up, while we expect ~8-10% up-move in Nifty in 2022 from the current level.

Going forward, as most global central bankers, including the US Federal Reserve, tapering of the soft monetary policy and abolishing the monthly asset purchase programme a liquidity-driven market globally is likely to take a backseat in CY2022.

However, we believe that India is better placed compared to major global economies in terms of handling Covid and its spread, while the revival of CAPEX and higher growth potential over the next 1-2 years would boost the expansion of the Indian economy ahead of many other nations. This would lead to a bounce-back in Indices going into 2022. 

Q) The US Fed signs 3 rate hikes in 2022 – how will it impact Indian markets, bonds, and currency?

A) Fed tapers bond-buying aggressively along with an indication of three rate hikes in 2022. With the reversal in rate cycle, equity flow will get diverted to the debt market to an extent, which certainly has a negative impact on equity inflows across the globe, including FPIs flow to EMs.

Therefore, we expect a gradual FPIs outflow to continue for some time before the reallocation of assets happens.

On the other hand, this supports bond market and returns from this asset class improves. However, fund outflow may lead to INR depreciation.

Any further depreciation of the rupee against USD may pose a challenge to growth.

Q) What are your expectations from Budget 2022?

A) The Budget will be pivotal in defining the way forward for the Indian economy that is still recovering from the aftermath of the unprecedented global pandemic.

While the Indian economy has been resilient and has bounced back quite well after the outbreak COVID-19 and 1HFY22 witnessed a substantial rise in GDP.

We expect the Budget to be populist to some extent and the government’s focus would be towards public spending to revive the economy, with an objective of boosting demand and creating jobs, while fiscal concerns will be kept aside for the next 1-2 years.

Focus on economic revival by increasing spending and need-based CAPEX by the government would be key agenda this time.

Q) Which sectors could be in focus in Budget 2022?

A) We expect Budget’s focus would be on Capex Revival and EV, supporting growth for sectors like capital goods, consumers, engineering, and EV value chain system (Automobile, auto ancillary, charging infrastructure, battery makers etc)

Q) As we close the year 2021 – small & midcaps indices almost doubled compared to benchmark indices. Do you see a similar outperformance in 2022 from the broader market space?

A) Yes, we expect the trend to continue in CY2022 as well. We expect Nifty to deliver 9% return while small & midcaps indices to deliver healthy double-digit return in CY2022

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

A) Increasing Digitisation and IT Scale:

A massive change in terms of digitisation and adoption of IT services would continue over the next 2-3 years globally.

We expect further scope for Indian IT names on increasing automation and potential for AI, ML, IoT etc. Indian IT names witnessed strong deal wins and margin recovery driven by increased offshoring and higher utilization.

We maintain our positive stance on the Indian IT sector, as we envisage the current technology spending up-cycle as a multi-year trend.

We expect the IT names in our coverage universe to clock healthy growth over FY21-FY24E. Additionally, most of the Indian IT companies have guided for double-digit revenue growth in FY22, led by strong deal wins and a robust deal pipeline.

Electric Vehicles

We believe that the adoption of EVs would be a transformational change over the next decade, with an increasing focus on new EV launches by most OEMs.

Moreover, the entire value chain development and EV ecology provide ample opportunities to the various associated industries in EV space. EV adoption is likely to be prominent in the 2W segment followed by Public Mobility.

Overall, EV adoption would be gradual but has a huge potential for growth in terms of localisation as well as an opportunity to make India a global manufacturing hub for EV and EV equipment/ancillaries.

Capital Goods:

The economy witnessed a sharp recovery in 2HFY21, which saw a bit of sluggishness post the second Covid-wave. However, CAPEX by the government as well as by corporates is expected to revive strongly in 2022.

Capex revival in the Capital Goods sector is essential for economic growth and steady recovery. Moreover, the government’s support through PLI and China plus factors would further encourage manufacturing, going ahead.  

The sectoral outlook appears to be promising from the mid-to-long-term perspective with huge opportunities coming from the various infra projects like the National Infrastructure Pipeline (NIP) with an estimated Rs111tn expenditure over the next five years and similar projects.

Q) Any stock or sector that could turn out to be a dark horse of 2022?

A) We expect EV disruption in India is being led by key factors like its affordability, sustainability, performance. EVs is likely to be the dark horse sector for CY2022.

We believe that the adoption of EVs would be a transformational change over the next decade, with an increasing focus on new EV launches by most OEMs.

Moreover, the entire value chain development and EV ecology provide ample opportunities to the various associated industries in the EV space. EV adoption is likely to be prominent in the 2W segment followed by Public Mobility.

Overall EV adoption would be gradual but has a huge potential of growth in terms of localisation as well as an opportunity to make India a global manufacturing hub for EV and EV equipment/ancillaries.

Q) What are your views on markets in terms of earnings recovery in 2022, as well as valuations when compared to global markets?

A) We expect steady earnings recovery in 2022 on the back of

a) Volume improvement with economic recovery post-Covid,
b) rural revival supported by healthy agri output and higher spending and
c) margin expansion on account of likely correction in elevated commodity prices.

Indian Markets are likely to report strong healthy growth for FY22 and FY23. The Nifty delivered 21% return so far in 2021 and is trading at 21x FY23 earnings.

Q) What are your views on IPOs hitting D-Street? Do you think that there is general expectations IPO = quick money? How should investors look at investing in the IPO?

A) There are a good number of IPOs came in 2021 with many quality names and startup businesses encashing their efforts. IPO frenzy in the market has an important debate with more than 60 companies already listed in 2021.

Some of these stocks had a mega listing, for instance, new-age startups like Zomato, Nykaa, and Go Fashion along with the companies from other sectors like Mrs. Bectors Food Specialities Ltd. and Stove Kraft Ltd.

On the other hand, a few companies did not perform as expected, and eventually, investors had to bear losses at the time of listings. IPOs have certainly helped retail investors in terms of easy money and quick returns.

However, going forward, investors should be selective in applying for IPOs as valuation for many companies are expensive in past few days and few giants are trading much below IPO pricing.

Therefore, the quality business should be focused on along with its valuation. Every quality has its own valuation. Expensive valuation can’t generate returns despite being the best of the business profile.

Q) It has been an exciting journey for retail investors who joined the D-Street party recently (1.8 cr Demat accounts as on October 2021). Clearly there is a rush from retail investors to invest in inequities. SIP flows surpass Rs 11000 cr. What is the trend you foresee for 2022?

A) We see retail participation would continue steadily going into 2022 through direct mode as well as indirect mode (MF/SIPs etc).

While the pace of growth in terms of increasing retail investors would slow down going forward as expected return from now onwards would be much lower than what we have witnessed in 2021.

(Disclaimer: The views/suggestions/advices 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.)