Hemang Jani, Head of Equity Strategy, Broking and Distribution, Motilal Oswal Financial Services is positive on Indian equities from a mid-to-long-term perspective. In an interview with MintGenie, he shares his views on the market and economy and revealed his favourite themes for investment.
Edited excerpts:
What is your overall view of the current market condition? Are we going to end the year with single-digit gains?
Indian markets have stayed resilient and strong amidst global concerns about high inflation, rising interest rates, currency swings and geopolitical uncertainties.
This is well reflected in Nifty performance, which despite the huge volatility, is up 4% year-to-date (as of 3rd Nov), as compared to a 20-30% fall in most of the global indices.
The driving force behind India’s outperformance is its domestic consumption-driven economy, which puts it relatively on a better footing compared to the developed world which is struggling with high inflation-slow growth challenges.
The strong corporate earnings growth of 24% CAGR during FY20-22 well proves the resilience of the Indian economy.
Going ahead too, Nifty earnings are expected to grow robustly at 16% CAGR over FY22-24.
This year's festive season started on a positive note after the pandemic-induced disruption of the last two years. Thus, domestic demand and discretionary consumption in India provide a silver lining.
In addition, corporates are undertaking capex after several years while India’s credit growth has been consistently growing at nearly 15%-16% - the highest in the last nine years.
Thus, we are positive on Indian equities from a mid to long-term perspective, although intermittent volatility cannot be ruled out on account of global uncertainties.
Fed rate hike is likely to continue for some more months and the US may see a recession next year. What will be its impact on the Indian market?
There would definitely be some impact on the Indian economy if the US goes into recession, as the slowdown in global demand would impact export-oriented companies. But on the other hand, global prices would cool off substantially making imports cheaper.
India being largely domestic consumption driven would be immune to global slowdown to some extent and would stand at a much more comfortable position vis-à-vis global peers.
Thus, Indian markets are likely to witness huge volatility on the back of global uncertainties but domestic consumption along with the government’s thrust on reviving capex would provide support to the market.
Indian economy is said to be on a strong footing compared to its global peers. What are some bright areas of the economy? Do you see some challenges?
Better macroeconomic management by RBI and the government helped India stand out in a volatile and uncertain world.
As per IMF projections, India is expected to grow the fastest in the world at about 6.8%.
In Q1 itself, real GDP grew by 13.5%, led by private consumption and investments.
Even other macro, indicators are trending upwards, pointing towards the pink health of the economy.
India’s overall loan growth is at a decadal high, at 15% plus, showing signs of improving business trends for banking and financial services.
Apart, improving demand and healthy balance sheets are encouraging corporates to talk about capex after several years which bodes well both for financials as well as capex-linked sectors.
Domestic consumption especially discretionary consumption has largely surpassed the pre-covid levels, thus reflecting the robustness of demand.
Definitely, there are challenges in term of global uncertainties which is keeping oil prices fluctuating, the rupee depreciating, imports getting expensive and export demand getting hampered.
But still strong domestic macros are providing strong resilience amidst these challenges.
Are you buying in this market? What sectors are you betting on?
Yes, we are buying in this market as we are positive on Indian equities from a mid to long-term perspective on the back of healthy domestic macros, strong fundamentals, robust earnings and an upbeat festive season.
The broader market has been outperforming well and is likely to remain in flavour with action in niche midcap sectors.
Over the next year, we expect Nifty to deliver a return of 12-15%.
Overall, we are positive on BFSI, consumer discretionary, auto, retail, capital goods, and real estate. Some of the niche segments we prefer are hotels, footwear, QSR, defence, and hospitals.
Is the worst behind for the IT sector? How should we look at the midcap IT stocks?
Increasing macro concerns and a slowdown in GDP growth, currency depreciation, rising inflation in the US and Europe and ongoing geopolitical tensions are resulting in near-term uncertainty in the Indian IT services space.
On a year-to-date basis, the IT index has been corrected by more than 30%, thus making them attractive.
We believe macro concerns have been factored into a large extent in the recent correction.
On the other hand, migration and digital transformation initiatives will continue to drive significant demand for Indian IT companies over a long-term period.
Accenture's 4Q performance and FY23 guidance suggest continued traction in Tech spending in the near term.
We remain positive on the sector due to sustained long-term demand. We continue to like Infosys and TCS in tier-I IT and LTTS and Mphasis in tier-II IT from a long-term perspective.
Banking stocks, especially the larger ones, have been in focus this year so far. Is it time to book some profit from them? What should we do with the midcap banking stocks?
Banking credit growth has entered a new upcycle with the banking system seeing healthy systemic loan growth of higher double-digits driven by continued momentum in retail, SME and corporate segments.
BFSI Profits have gone up from ₹60,000 crore in FY19 to ₹1.5 lakh crore in FY22.
Meanwhile, the market cap of BFSI stocks has gone up 60-65%.
With a revival in credit growth, continued improvement in asset quality and a pick-up in capex, more catalysts are emerging in BFSI. Though some partial profit booking can be taken, the second leg of re-rating is more likely.
What should be one's investment strategy for the medium term? Should one increase the allocation of safe haven assets?
Investors instead of looking at indexes should focus on sectors and stock selection among them. Given feeble global macros, the market may enter into prolonged consolidation, however, there would continue to be a lot many stock-specific actions.
Since the overall outlook on the market is positive, it’s not necessary to increase allocation towards safe haven stocks. What is essentially required is building a portfolio of good quality stocks from sectors holding high growth potential.
Unless the valuation is exorbitantly too high, one should ignore it and focus on the growth prospects of the company and whether it can deliver it on a sustainable basis.
One can then start adding them to the portfolio in a staggered manner and later can build a bigger position in it if he gets the opportunity at lower levels. Otherwise one may miss good investment opportunities during market rallies.
Disclaimer: The views and recommendations given in this article are of the analyst. These do not represent the views of MintGenie.
