Sectors that are interesting bets are Chemicals, Pharma, Insurance, select Consumers, and NBFC’s. I am focused on sectors and stocks where I can see clean growth.
Vinay Khattar, Head of Research, Edelweiss Wealth Management expects SAMVAT 2077 to start with some correction from the current highs, but he says it is a buy on dips market around 11,000-11,500 levels.
With decades of experience under his belt, Khattar is hugely influenced by Warren Buffett and Charlie Munger’s philosophy of investing. He named Zydus Wellness, Chola, Navin, SBI Cards, and Can Fin Homes as top picks for the next 12 months.
Here are the edited excerpts from his conversation with Moneycontrol’s Kshitij Anand.
Q) Narendra Modi in his interview assured the people of India that the economy is on track, and he is optimistic of reaching the $5 trillion economic target by 2024. What are your views?
A) In the current economic slowdown owing to the pandemic, the Indian economy is expected to shrink by about 10 percent. This brings us much further from the USD 5 trillion targets by 2024 of which we were already falling short pre-COVID.
I believe that the priority should now to bring India back to growth levels rather than chasing absolute targets. Most high-frequency data has either settled below pre-COVID levels or has shown growth reflecting pent up demand that is expected to fade off.
India needs to aggressively reflate the economy and move to over 10 percent nominal growth on priority- other targets will follow with time.
Q) Much emphasis was given on attracting global funds into India. Which all sectors likely to benefit the most from such a surge?
A) Financials, IT, and Pharma have been FII favourite in the recent rally, we expect the incremental flows to continue coming to these sectors.
The inflow of global funds was primarily a result of Central banks’ Quantitative Easing programmes and consequent tap of global liquidity that opened up.
With the pace of global liquidity expansion slowing now, we are closely watching the incremental flows that could taper off from the highs. India’s position in the EM basket will play an important role.
While for debt inflows, India still has considerably higher yields, it is the equity flows, where valuations are on the higher side, which is the needle mover. The outcome of US elections will also become critical.
We are closely watching the strength of the dollar, US treasury yields etc. to gauge the risk sentiment and a risk-on sentiment post the elections could be positive for the Emerging Markets in general and India in particular.
Q) In the run-up to Diwali – how do you sum up SAMVAT 2076? What were the important developments from stock market perspective?
A) It has been one of the most eventful year- a rare one indeed. The markets and economy had just begun to move up post last Diwali with market breadth showing improvement.
However, the February budget offered mixed signals to the markets with some sectors, such as Insurance, losing their sheen. Needless to say, the Covid-19 pandemic was the biggest event in the market with an unprecedented fall and markets getting shut twice as they hit their lower circuits.
The bounce-back has been swift and in hindsight, the March bottom produced a great opportunity to invest. The valuations now are high and interest rates are low.
There is increased retail participation in direct equity, about 12 lakh new Demat accounts were opened in first two months of lockdown! These themes will continue to exist in the near future.
The end to this pandemic, fiscal and monetary stimuli across the globe and the geopolitical situation will continue to be key monitorables in the first half of coming SAMVAT.
Q) What are your expectations from SAMVAT 2077 from markets point of view?
A) Well, owing to the volatility emerging out of US elections, we do expect this SAMVAT to start with some correction from the current highs.
Having said that, we do expect it to be transient with a good run in equity ahead of us. We would recommend to buy on dips once the market touched 11000-11500 levels.
Q) Which will do better in the next one year – largecap, mid & smallcap? And why?
A) We generally prefer midcaps above Rs 5,000 crore market cap. Historically, the maximum amount of wealth is generated in stocks with a market cap between Rs 5000-1000 crore.
However, needless to say, it is more important to focus on the specific sectors. I will put my bet in the right businesses in the strong moated sectors- that have good earnings potential ahead of them.
Q) Which sectors according to you could do better in the next one year, and why?
A) Firstly on the markets, I would not be on the buying spree. There can be some time correction or price correction in the marker after this big rally.
Having said this, I am still a buyer although in a staggered manner. Sectors that are interesting bets are Chemicals, Pharma, Insurance, select Consumers, and NBFC’s. I am focused on sectors and stocks where I can see clean growth.
Q) Your top stock picks for SAMVAT 2077 which investors can look at buying now or on dips?
A) I would prefer Zydus Wellness, Chola, Navin, SBI cards and Can Fin homes.
Q) Do you think earnings will recover by next Diwali? If yes, what are the factors which could fuel recovery?
A) I am hopeful that earnings will recover. We have already seen an unexpected decent growth in the Q2FY21 quarter.
There are sectors which can give earnings surprise like Auto, IT, and Banking. The rural economy is faring relatively well and as we continue to have better control over the pandemic, urban India will also bounce back.
The recovery path might be slow but it will eventually perpetuate to all segments of the economy. Global stimuli has been strong, and consequently, global demand has seen an impressive comeback.
This gives India an opportunity to do well in exports oriented sectors such as chemicals, electronics, and other manufactured goods. Some green shoots on the exports are already visible.