In an interview with ETMarkets, Master said: We don’t expect any major downgrade to our Nifty earnings estimate. Our year-end target for Nifty is 18,200. Edited excerpts:
Where are markets headed in the next six months?
We expect the markets to be volatile in the near term as they brace for a possible recession in the US and EU apart from a tightening liquidity scenario, but in the medium-term, we expect them to stabilize and move higher.
We don’t expect any major downgrade to our Nifty earnings estimate. Our year-end target for Nifty is 18,200.
The carnage was seen in the small & midcap space in the first half of 2022. Do you think the excesses are now gone and we are sitting in a comfortable position with respect to valuations?
The small and midcap space still have good scope to correct if one looks at the historical difference between the valuation of largecaps vs small and midcaps during market downturns. I would be more positive on largecaps than small and midcaps.
How do we stack up against global peers after the recent fall?
Despite the recent correction we have witnessed, India remains one of the costliest emerging markets currently probably because of better growth expectations and the quality of the companies listed.
If one compares most of the developed markets too, India remains expensive.
Where do you see commodity prices heading in the next six months of 2022?
In the near term, as more and more market participants get worried about a recession in the US and Europe, we expect commodity prices, except for energy commodities, to correct.
But, once winter arrives in Europe and if there is a shortage of fuel that necessitates the closure of capacities, especially steel and aluminium, then the prices can bounce back swiftly.
The first six months of 2022 saw – war, inflation, Fed rate hike, rise in interest rates, crude oil @$120, and supply disruptions. Do you think these factors will play a major role in H22022?
Currently, the global scenario is very dynamic with too many moving parts. The factors mentioned above will have a role in the second half of 2022, but there could be new factors that could become important.
Some of the new factors that could weigh include weaker health of European Banks, weakening of European periphery economies, recession in the US and Europe, etc.
Any key learnings you would like to share with investors?
The stock market keeps teaching us new things every day, no matter how experienced or intelligent an investor or trader might be. Some basic lessons include:
1) Not to be swayed by market chatter or rumors, especially in fundamentally weak companies
2) Free cash flow generation remains very relevant for valuing companies (Unicorns burning cash and having no realistic pathway to profitability is a losing proposition, in the long-term)
3) While investing in equities, one should always have a long-term investment horizon
4) Discipline in investing is as important, if not more than stock picking.
How are earnings likely to pan out in H22022 or the rest of FY23 amid global headwinds and supply bottlenecks?
We expect close to 12% earnings growth over the next two years despite global growth headwinds and supply bottlenecks. Banks, Auto, Capital Goods, and Energy excluding OMCs and Agri should do well, while Metals and Building Materials might disappoint.
We are down in double digits from high but still not in a bear market. Can we say that this is the March 2020 moment for retail investors, and they should not lose this opportunity?
Even though the recent correction has moderated the market exuberance, our market is still not only more expensive than other EM peers but is also more expensive than its own last 10-year average multiple.
On the positive side, the Indian corporate (including banks) balance sheet is arguably in the best position in a decade or more.
We believe one should start accumulating at current levels and keep increasing equity allocation of a portfolio every fall with a long-term investment horizon.
Which sectors are likely to hog the limelight in H22022 and why?
Banks: We like banks, especially the ones with strong CASA franchises, which can help them improve market share and margins in a rising interest rate scenario.
Auto: We like the auto sector on the back of strong demand, falling raw material prices, and improved availability of semiconductors which will help increase production levels.
Capital Goods: Another positive sector is capital goods, where companies have record order books and possibly will also benefit from falling steel and aluminium prices.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)