Indian markets have witnessed a sharp correction in 2022 on the back of a number of weak global and domestic trends. One of the main reasons for the same was the continous outflows by foreign investors. However, despite more than $6 billion of foreign outflow in June, almost the same amount is poured into by domestic institutions, noted Piyush Garg, chief investment officer, ICICI Securities.
In an interview with Business Standard, Garg pointed out that looking at the rise in domestic flows, he doesn't believe that the peak pessimism has been reached yet. That is why there may be more painful consolidation, he added.
According to Garg, the price-to-earnings (P/E) ratio has seen sharp contraction, which warrants investments from a long-term perspective.
"Nifty’s one-year forward P/E was 23x when the index made a high of 18,600 in October 2021. While the market fell, earnings continued to revive. This led to a contraction in Nifty P/E to 18x 2022-23. Such contraction in P/E warrants some investment from a long-term perspective," Garg told BS.
Going ahead, he stated that the investor focus will be on results and future guidance. Better-than-expected results can revive investor interest, he noted.
Gard further highlighted that the impact of higher interest rates is clearly seen in the demand slowdown in the US and Europe.
"Investors have not seen such high inflation in 40 years. A sharp increase of 75 bps in just one month is also unprecedented, compared to two decades of rate hikes. Foreign investors across the globe have displayed risk-averse behaviour. This trend may alter, with the Russia-Ukraine stand-off finding some solution," he said.
He expects equity markets to remain volatile in 2022-23.
Among sectors, he prefers business-to-business businesses in a higher inflationary scenario.
"We are overweight on production-linked incentives and China Plus One beneficiaries. We prefer large banks and non-banking financial companies," he said.
Garg further added that his focus is on rising refining margins in the energy space and an increase in average revenue per user in the telecommunications space. Also, beneficiaries of higher government capital expenditure can recover faster in the days to come, he stated.
