PERSONALISED INVESTMENT MANAGERS
It was time for our quarterly meet with some of the most astute minds in the financial world in India. And we bring you some nuggets from them.
The Indian equity market in the next 3-6 months will be choppy and remain volatile due to global macro headwinds like tightening of liquidity, rising interest rates, geo-political tension, recession in the US, economic turmoil in Europe and UK etc. Any sudden changes in the geo-political activities globally especially the Russia-Ukraine conflict will impact the markets. But, in the absence of any extreme turmoil in the global economy, Indian equity may remain range bound with a healthy correction of 10%-15%.
In case of global turmoil, we may see a correction of between 15%-20% in the Indian equity market. Equity markets factor these changes faster than the policy makers. We need to be mindful of external factors like deep recession in the US & EU, vulnerability of currency, acceleration in FIIs outflows etc.
Currently, we are in the phase of valuation adjustment as it is determined by liquidity, earnings growth, and interest rate. Earnings & Earnings growth are supporting the market whereas rising interest rates and liquidity tightening are working against the market. This is a period of adjustment in PE multiples.
During the Covid-& post-covid scenarios when interest rates were low, with enough liquidity, the rally in the equity market became broad-based. However, in the current scenario when the rates are high and liquidity is getting tightened, we may see a narrow-based market for some time.
Domestic-focused companies are benefiting from large domestic consumption driven by large population and also because of substitution in the imports. On the other hand, export-oriented businesses are getting benefited due to a global China+1 and the recent Europe+1 scenario.
It is the first time in three decades that there is a divergence of MSCI Emerging Market & MSCI India Index. India has outperformed other emerging markets drastically. Key reasons being strong support from retail investors and DIIs, policy decisions and strong corporate outlook.
Instead of confusing ourselves with a lot of macro data from around the world, we should focus on the balance sheet, free cashflow and valuations. It is crucial to look for companies where the promoter’s interest is aligned with the interest of its minority shareholders.
Even though profitability has improved in Indian corporates because of deleveraging, consumer demand seems to be flat and is not exciting if we compare the 3-year CAGR of multiple products.
Senior Fund Manager,
Most large cap companies are into B2C businesses and revenue growth has been flattish in the last three years while mid & small cap companies in B2B businesses have shown considerably better revenue growth. Hence Mid & Small Caps have outperformed the Large Caps. Once there is consumption revival, we should see revenue growth in Large Caps as well. Sectors like Banking, Pharma & Chemical would be the next winners.
But we need to remember that Delta growth is as important as the normal growth of the company. If there is a slowdown in delta growth, there will be a rerating on the stock price although normal growth rate is positive.
We are of the view that the equity market will remain volatile for the next 9-12 months, possibly correcting by even 10%-15% at any time. It is impossible to time the market, and no one can predict when the market will bottom out. However, every sharp dip is an opportunity to add into equity and we are also adding lump sum cash during sharp corrections.
There are macro headwinds, led by the Recession in US and UK markets (hyperlink to How Does A Recession In The US Affect India) but we advise you to continue systematic investments through SIPs and STPs as it is. In case of any lumpsum investment, do it in multiple tranches. Rising interest rates provide an opportunity to invest in debt instruments for regular cash flows as well as diversification in the portfolio.