Daily Voice | Expect Agriculture, Health, Infrastructure To Be Cornerstones Of Budget

After recent correction, Shiv Chanani, Head of Research at Elara Securities India says they would expect market to go into a consolidation phase before the next move which would be driven by domestic investment and consumption.

On the budget, they expect the budget to be pragmatic and investment oriented as has been the case in the past. “We expect Agriculture, Health, and Infrastructure (both physical and digital) to be the cornerstones of the Budget,” says Chanani who has over 20 years of experience in Equity Research and Fund Management.

Considering the rising expectations for Fed rate hikes in 2022, Chanani says they expect Monetary Policy Committee to begin normalizing the repo and reverse repo corridor starting February-2022 and follow it up with a first repo rate hike starting Q2FY23. “We are pencilling in 50-75 bps repo rate hike in FY23.”

What are the great lessons you learned from 2021. On that experience, what is your advise to new age investors for 2022?

We believe that the biggest learning from 2021 is that pandemic has accelerated technology adoption across the board making. While this has thrown up large opportunity in the technology solutions space, it has also made almost every business vulnerable to digital disruption.

Hence, investors should be looking at managements that are following the mantra of “digital first”. Concurrently, it would be as important to identify companies which are lagging behind in technology adoption and avoid them even if the valuations look cheaper from historical perspective.

At the age of 25-30 with a balance of Rs 10 lakh, where should one invest in 2022 or how should one allot money in his/her portfolio at the start of 2022 to get healthy returns?

Given the fact that risk appetite would be higher, one would be advised to allocate 100 percent of the funds towards equities. However, given the near term uncertainties, it is advisable to have a more balanced exposure of 50 percent each to largecaps and SMID (small & mid caps).

Do you think there could be more correction in coming months given the Omicron worries, expected rate hikes and liquidity tightening? Also is there any possibility of double digit returns in 2022 in comparison with 2021 (up over 20 percent so far)?

Markets have witnessed correction because of combination of factors like Omicron and expected rate hikes. Nonetheless, we believe that India is better placed on both accounts in comparison to rest of the world. Even though its early, experts’ opinion suggest that Omicorn infections are milder than previous Covid waves. If that view were to fructify, then we may not see any significant impact on growth.

On the macro front, India’s Current Account deficit and forex reserves are at comfortable levels to see off any volatility on account of Fed tapering. As liquidity tightens, we may see impact on the valuations of some new age technology companies, but they form a very small part of the Indian market compared to global peers.

Overall, we would expect market to go into a consolidation phase before the next move which would be driven by domestic investment and consumption.

The market has seen the first biggest correction since the beginning of bull-run last year. Have you spotted any themes that one has to consider for investing in the current free-fall, for 2022, and why?

We expect inflation to taper down towards second half of CY2022 due to a combination of base effect and easing of supply constraints. Growth is likely to be driven by recovery in both investments and consumption and could potentially surprise on the upside as is usually the case in rebound phases.

Thus investors should use the current correction to add companies in sectors like discretionary consumption and capital goods (beneficiary of rebound in investment), which are likely to be favourably placed next year.

In addition, investors should also be looking at long term secular growth stories in spaces like energy transition, digital disruption and manufacturing at scale.

Do you think it would be a big bang budget and what would be focus areas? Also is there any populist measures given the states elections going ahead?

We expect the budget to be pragmatic and investment oriented as has been the case in the past. Given the fact that nominal GDP growth has surprised on the upside as well as tax revenue collections have been fairly robust, we believe that there is enough headroom for the fiscal deficit to remain in line with initial estimates. We expect Agriculture, Health, and Infrastructure (both physical and digital) to be the cornerstones of the Budget.

What are the biggest risks or concerns (global and domestic) that every investor has to consider while investing in equities in the year 2022?

Key risk would be another round of severe virus pandemic which could de-rail the nascent economic recovery and result in continued inflationary pressure. Another risk may emanate from large scale bubble forming around cryptocurrencies which may cause systemic risk in the financial markets.

Will India continue to enjoy premium to most of emerging markets (EM) in 2022 and why?

India has clearly emerged as one of the most resilient economy through the entire Covid crisis. While larger EM like China has witnessed de-rating owing to regulatory concerns, India has seen a re-rating.

Furthermore, growth outlook for India remains amongst the best in EM. It would not be wrong to say that India represents one of the few brighter spots within emerging market space and hence the premium valuation are likely to be sustained.

Given the rising expectations for three rate hikes in the US in 2022 and liquidity tightening to control inflation, do you expect the RBI to think of rate hike in second half of 2022 or will the RBI continue to prioritize growth?

The Monetary Policy Committee (MPC) has limited degrees of freedom amid projected liquidity normalisation and rate hike trajectory in advanced economies especially the US. We have seen the impact of the same lately in Rupee weakness and FII outflows.

In this backdrop, we expect MPC to begin normalizing the repo and reverse repo corridor starting February-2022 and follow it up with a first repo rate hike starting Q2FY23. However we don’t anticipate the rate normalizing cycle to be steep given the still uneven growth and tentative investment demand. We are pencilling in 50-75 bps repo rate hike in FY23.

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