stock market outlook: ETMarkets Smart Talk: From a valuation perspective, markets are moving back into the investment zone: Sandeep Bhardwaj

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“After the correction, markets are now available at a P/E of 16.6x FY24, which is closer to their 5-year average. Thus, markets are back in the investable zone,” says Sandeep BhardwajCEO, Retail, IIFL Securities Ltd.

In an interview with ETMarkets, Bhardwaj said, “India will be the fastest growing economy in the world for at least the next 2 years”, edited excerpts:

As we enter the second half of 2022, what are your expectations of the markets? Do you think 2H2022 will be better than 1H2022 because most of the negatives are taken care of?
We expect the market to start the long term bottoming process by the end of 2022. However, in the short term as the markets are a bit oversold and over the past 21 years the Nifty has not not fallen for three consecutive months, we could see a relief rally in July.

We have already seen a negative close for April, May and June – so if history repeats itself, we could see some relief in July.

We have seen that investors assume that rising bond yields lead to a compression of the PE. After a thorough analysis, we were able to conclude that although there is a negative correlation between the variables, it is not strong and consistent enough to prove that the hypothesis is always correct; therefore, predicting the direction of index movements based on inflation and yields seems like a tricky exercise.

Gravity seems to be pushing the rupiah towards new highs. What impact will this have on foreign investment and FII flows?
The INR is constantly under pressure due to the high output of FII. FIIs withdrew Rs 58,000 crore from Indian stocks, the second highest monthly outflow in the last 20 counting years.

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However, they will make a strong comeback once the global scenario stabilizes. They don’t have many big emerging market destinations (given Russia is out of choice and anti-China sentiments linger since Covid); except India.

The Indian market has been more resilient than US markets or other emerging markets over the past 6 months or so – what does that tell you – strong macros or strong DIIs? Which is a more important factor?
I think it’s both a strong macro and strong DIIs. The government and the RBI have been proactive, and public finances appear strong to weather any global storm, India is standing tall amidst many emerging markets facing economic upheaval.

India will be the fastest growing economy in the world for at least the next 2 years. The post-Covid recovery has been extremely robust, which is visible in consumer spending on travel, hotels, automotive, etc. and a strong recovery in GST collections.

Rural consumption is also showing signs of improvement with higher MSPs and the government. Support. DIIs bought on these positives, while FIIs could sell in India at par for losses incurred due to the exit from the Russian market and the US-China slowdown.

We have seen many memes saying “My FD gives more returns than stocks”. With rising interest rates and global tensions, how should investors structure their asset allocation?
Asset allocation depends on investors’ risk appetite and varies from person to person. I believe that over the next 6 months, investors should take advantage of market corrections and start investing more in stock-oriented plans with a long-term view.

Ideally, you should have 70% of your assets in stocks, 20% in fixed income securities and 10% in gold.

Which sectors will be in the spotlight at 2H2022?
For the second half of 2022, we expect banks, commodity consumers and IT to lead together. According to the RBI Financial Stability Report, banks’ GPAs hit their lowest level in six years, indicating that they are well managed and

through difficult times.

Some IT stocks also look attractive given their current valuations, as near-term demand is intact, the deal pipeline is strong, and there are no signs of corporate slowdown.

India’s IT sector has underperformed broader markets by around 15% year-to-date and now implies long-term USD revenue growth of 9%.

A strong correction in major commodities will bode well for sectors such as appliance companies, industrial companies as well as automotive.

Any sector that could turn out to be a dark horse of 2022 and why?
We believe the property sector could prove to be the dark horse of 2022. Listed developers saw another quarter of record residential project sales in Q4, with FY22 sales/growth now at a historic level for most promoters.

Forecasts for FY23 point to at least double-digit year-over-year pre-sales growth and significantly higher launches.

Rising interest rates and input costs could dampen sector sales, but should accelerate consolidation. As such, record data for April-May 22 suggests sales momentum remains robust.

We prefer developers with high unsold finished inventory, high OCF margins and low leverage –

remain our top pick among residential-focused games.

For risk-averse investors, do dividend-paying stocks make more sense? Or they can look at multinational companies listed in India. Are there any thematic themes that now look more attractive amid global factors?
Several big companies like Google have never paid/paid low dividends when reinvesting their earnings. Now, a risk-averse investor investing only in high dividend-paying companies would have missed out on price appreciation.

Investors need to balance their dividend expectations with their growth. Infrastructure as a theme looks interesting because with rising interest rates, inflation is expected to come down, which will help margins for companies in this sector.

In addition, government efforts for infrastructure to drive growth will also likely have a positive impact on the sector.

After the recent drop, is the Nifty50 trading at reasonable valuations? Or is there still an additional downside margin? How is trading compared to global peers?
After correction, markets are now available at a P/E of 16.6x FY24, which is closer to their 5-year average. Thus, the markets are back in the investable zone.

Since no one can time the market, investors should take advantage of this correction to earn higher returns over the medium term.

We must not forget that this is not the first time that the markets have fallen, and it will not be the last time. Such phases of correction are an opportunity for long-term investors to obtain higher returns by capitalizing on these declines.

How do you see the IPO market in 2H2022 after the recent IPO which did not encourage retail investors?
Markets have had a tough time over the past few months and even large cap stocks have been hit hard. During these difficult times, investors tend to reduce their investments in riskier bets and instead invest in large caps during the fag end of the down cycle.

IPOs have had a lukewarm response as they have no track record of stock market performance. However, investors would have made money even in these difficult times if they had been selective in their IPO investment.

There are many IPOs expected to be announced at 2H2022 like Ixigo, Boat, etc. which are surely exciting and are likely to bring back the wave of IPOs that had been missing for two months.

With 10.8 crore registered investors on BSE – what’s your advice on how to navigate the rest of 2022 or FY23?
The seeds of a bull run are always sown in a bear market!!! In the words of Shelby Davis “You make most of your money in a bear market, you don’t realize it then.” I would like to advise investors to stay invested in quality stocks and not be affected by all the noise going around.

In the 40 years since Sensex was founded, if you missed just 10 good days, you lose 2/3 of the winnings. It is therefore advisable to stay invested.


(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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