“I see no reason why the Indian markets will not do well for the next 12 months from this Diwali to the next. I think we have a good chance of getting Sensex up 18% to 20% and hitting 70,000,” said Vikas Khemani, founder of Carnelian Capital Advisors. I see you are clearly attracting a new avatar. Let’s understand what the stock markets in the next Samvat as it has been choppy to say the least so far Outperforming the rest of the world Do you like the term decoupling or do you find it very difficult to counter the going into power? How has India performed? It’s clear that India has done very well. Last Samvat, around the time of Diwali, there was a lot of optimism and positivity. We saw the Fed raise interest rates significantly, the inflation figures turned out to be a came as a surprise and the war in Ukraine took place, but in spite of all these factors, India held up and when most markets fell 20%-30%, India clearly outperformed.
Whatever problem arises elsewhere, India is not much bothered by it. Some factors are even working for India in the growth phase we are in. If commodity prices fall, it works for India and the demand scenario in India is not a problem. Some of the trends like China plus one are working very well for the Indian manufacturing sector. All those things only bode well for India and they are only incrementally more catalyst of growth.
Economically, India has held up well, done well and we have seen the tax collection figures come out clearly. That shows what happens on the ground and in practice. We are of course in a global village. Globally, financial markets are interconnected and so it is very wrong to say that if something happens in the US, we will not be impacted at all from a financial market perspective.
But the great thing is that the consequences for the financial markets may be short-lived, but the economic consequences are generally long-lasting. Once concerns about global macros for developed markets materialize in the next three to six months, things should return to normal on those points as well and India should continue to do well.
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India should be in a structurally strong position globally, but last year Nifty’s performance declined by about 5%. Even at the portfolio level, it has not yielded much return for the investors in the next Samvat. What should be a reasonable expectation of the equity markets regarding returns? Can we see double digit returns? Absolute. I have had very high expectations for the Indian market from here, with 18-20% returns for the next Samvat. There are three reasons; First, I feel that interest rates and inflation around the world have peaked or may more or less peak in the next two or three months. We know that the Fed’s base effect is playing, commodity prices are falling and inflation or inflation expectations will tend to play out and that will give policymakers comfort in moving away from the aggressive stance. Much of this is already in the price or in the market. So in the next three to six months they should be behind us.
Second, India tends to take advantage of what is happening around the world. We don’t have a large share of world trade to be affected as an economy. Earnings growth will therefore largely remain, except for some sectors, such as commodities, which may be affected. But it’s not a very big part of earnings growth. So most of the big industry earnings will be good and I don’t see anything changing in that area.
Third, I am very positive about the FPI flows. In the last 12-18 months we have seen a huge amount of flows going out. Fortunately, domestic money was added. Such a large-scale sale has never happened before, but the market held up.
Going forward, we may see most FPIs withdrawing money from emerging markets, while the Fed raises interest rates and tightens liquidity. The typical playbook is that when the Fed raises interest rates, the emerging market currency weakens and thereby introduces inflation and economic growth begins to impact and in anticipation of the negative returns, most FPI investors withdraw money from emerging markets. ,
They return when the interest rate or the tightening cycle has peaked. The FPI flows return; it could be the next two months – three months or more, I don’t know that part. But I know that if I took a year off, I’m very confident that the FPI money will come back, especially to India, as India is one of the most promising emerging markets.
The weakening of the dollar is also starting to play out and is working very well for currencies. If you take the combination of strong liquidity from the domestic players, strong liquidity from the international investors coupled with the stable and robust earnings environment, I see no reason why the Indian markets will not fare well for the next 12 months from this Diwali to the next. to do. I would think we have a good chance of Sensex up 18% to 20% and reaching 70,000.
Diwali se Diwali branch, do you predict 70,000 for the Sensex next Diwali? Yes, I think it’s a very likely scenario for the reasons I just mentioned. Whether it will happen before Diwali or around Diwali I don’t know, but in the coming year we will most likely see a 20% increase.
And when you see that 18-20% growth, where should you drive? In 2020-2021 that was IT. You are an IT bull but you also cut your IT position earlier this year. You said 2022 will be the year of the banks. So for that 18% to 20% growth, what are you driving on? Obviously, banking will do very well. We are at an early stage of credit growth. For the past two, three, four years we’ve struggled with the NPLs and capitalization issues and I think it’s all behind us. Fortunately, the credit cycle has recovered. Most banks grow between 18% and 20% of their book value and the rising interest rate environment is helping them in terms of margin expansion. So I see that this environment will remain very robust in the coming years. I think this year itself, from this Diwali to the next Diwali, the whole bench basket would do well.
The second sector is the car, which starts to grow after a period of four to five years with no demand or very little growth. After the IL&FS crisis came the pandemic, then came the chip shortage and we haven’t really seen growth across the industry. The sector also looks promising and valuations are reasonable, not very expensive. So you can definitely look at that.
Third, we’ve seen investment cycle across the board, capex cycle picking, especially in manufacturing, China plus one strategy play out. So industry and manufacturing is a very big basket and in many segments and sub-segments I believe that theme will continue to play out. It’s a decade theme and I don’t see any reason why it won’t perform well in the next 12 to 18 months because whatever happens elsewhere will benefit these companies and the rupee depreciation is probably helping in some way.
China’s recent policy statements show that they are much more focused on the domestic economy. They reduce their
on the export part and in that sense India will of course have some advantage. So probably the production theme will come true.
I’m not so sure about IT. IT corrections have been significant, expecting demand to slow down, but if you look at the order book or order gains of most IT companies, that is a harbinger or indicator of the impact this would have on the slowdown or recession in the US.
Any company that awards an order knows that the US could enter a recession, but they are still awarding an order that is higher than the one in the same quarter last year. It clearly tells us that demand isn’t much of a problem. IT goes through a transient phase and in every structural cycle every sector goes through a transient phase. I’d say IT will do pretty well too. Sure, the market may take different stances in the short or medium term and fail to outperform and fail to return 18-20%, but sectors that can return 12-15% are the ones that would do well.
Is there an opportunity in the precipitated pharma, especially the way the currency is developing? Pharma looks attractive from a valuation standpoint and if you have to play counter it is undoubtedly a good sector as it is a defensive sector. Valuations have been corrected, expectations are very low, but at the same time there is no good view of the incoming demand. So those breakthroughs are still not there. It may disappoint timing wise, but given the risk reward from a three to five year perspective, pharma certainly looks interesting, not just from a currency perspective, but even in general.
Currency helps overall comfort, but in my opinion, currency will start to rise once interest rates peak in the next three to four months and the rupee gains strength. I don’t see this level continuing for the next 12 months.
What’s your multibagger idea for the next Samvat? I see your key positions are L&T. Limit it to one share. There are many ideas and it is very difficult to choose one idea. Companies such as L&T, ICICI Bank,
, I think will all be very well placed. We recently added Aditya Birla Capital and we think from this Diwali to the next, Diwali too, it can surprise us and bring superior returns.
(Disclaimer: Recommendations, suggestions, views and opinions of the experts are their own. They do not represent the views of Economic Times)