Anil Rego, Founder and CEO of Right Horizons, has a multi-decadal growth outlook for Indian equities. Meanwhile, he expects small corrections as speed bumps along the way. In an interview with MintGenie, he said that he expects Nifty to reach 20,000 by 2023-end.
He recommends investing and looking at any dips as an opportunity since the underlying earnings are growing at a healthy pace, and the broader markets will follow.
Markets at a record high? How long do you see this bull run to continue?
The March 2023 quarter results were healthy. Inflation is moderating and fresh loan lending rates are beginning to decline from recent peaks. Macro numbers swaying the sentiment to optimistic and anticipated rate cuts are all in favor of sustaining the recovery and likely pushing to new peaks. We have a multi-decadal growth outlook for the Indian economy and the equities and view small corrections as speed bumps along the way.
What factors can spoil this rally for the Indian markets?
Prolonged rate hike cycle, geo-political uncertainties, slow down in domestic demand, credit growth moderating, and delay in rural recovery are likely to impact earnings and likely have short-term impacts.
What trends should one look out for going ahead in 2023?
Global demand, credit growth trends, rural recovery, and rate cuts in advanced and domestic economies are all trends to keep an eye out for. Companies should be able to post relatively healthier margins in FY24 and earnings growth for FY24 should be around 18 percent, and market participants should be broad-based thus more opportunities for investors to invest.
Do you advise investing in the equities now or should investors wait for some correction?
We recommend investing and looking at any dips as an opportunity since the underlying earnings are growing at a healthy pace, and the broader markets will follow. Nifty has gone through 18 months of time correction and has given 14-15 percent of earnings growth during the same time thus we feel the market is fairly valued at this point in time while one can look to go tactically higher on SMIDs.
Midcaps and smallcaps have also hit their peaks. What is your outlook on the broader markets?
The SMID segment was discarded last year as domestic investors flocked towards large-caps and foreign investors to high-yielding US assets making it undervalued relative to large-caps available at discounts. We are optimistic about the Small caps and mid-caps segment and expect it to outperform over the next three to four years.
Valuation seems reasonably balanced at this point in time, especially on the small-cap side where good businesses were depressed last year due to liquidity outflow and tightening market conditions. Look out for growth companies that can stand to make the most when interest rates will come down as most of the valuation of such companies comes from the terminal value which rerates at a faster pace during declining interest rates environment.
Which sectors do you prefer for this year and which are the sectors to avoid?
In the midst of a slowdown in the global macro backdrop, Indian equities are near peak levels, supported by healthy profitability for the last quarter of FY23. Corporate earnings continued to be driven by financials and auto. FMCG and Infrastructure added to the momentum while Metals, Chemicals, and Power dragged.
The banking space is witnessing robust credit growth momentum, Autos are in upcycle with stable demand in case of CVs and the traction in the EV trend, and the paints segment in the Consumer space and building materials segment are witnessing healthy demand due to focus on infrastructure.
What strategy should one follow, now that markets have hit their peak?
A systematic approach by allocating money at regular intervals especially since markets are at peak levels will benefit investors by staying invested and not missing out on further rallies and any dips will be an opportunity to average.
Do you see any rate hike for India this year or the cycle has ended?
Retail inflation came in at 4.25 percent in May’23 and WPI deflating for the second month consecutively. We expect rates to be at a peak and expect rate cuts to begin in the last quarter of the current fiscal year.
Where do you see Nifty by 2023-end?
Pricing the future rate cuts, management commentaries, healthy domestic demand, macro stability, relatively strong fundamentals, and deleverage balance sheets of corporates, we expect Nifty to likely reach 20,000.
One piece of advice for new investors
Will Danoff quoted, "The bottom line is that stocks follow earnings.” With that principle in mind, you should relentlessly search for the best businesses run by competent management that are expected to grow to be bigger in five years. The principle behind this is simple. If a company can double its earnings per share in the next five years, then the stock price is also likely to more or less double.