Mkt at all-time high: Themes investors can play

The broader economy and the stock market are sending out conflicting signals. For instance, economists are downgrading their growth estimates for 2021-22. “The second covid wave and slow pace of vaccination will shave off 30 bps from 2021-22 GDP growth and therefore, we have revised our GDP growth forecast to 10.1% from 10.4% earlier,” says Sunil Kumar Sinha, Principal Economist and Director Public Finance, India Ratings and Research. However, the stock market is ignoring all these negatives and the Nifty has already crossed its February peak and reached a new all time high. How should investors navigate this scenario?Liquidity is kingMarket experts want investors to give more importance to the emerging global and domestic liquidity situation. “There is an artificial situation created by global central bankers and governments by keeping interest rates low,” says Naveen Chandramohan, Founder & Fund Manager, ITUS Capital.The $6 trillion new budget proposal by US President Joe Biden is bold and will increase global liquidity considerably. The US will spend $6 trillion per annum through this decade and will increase investment in infrastructure, education, healthcare, etc. As of now, covid is the only global headwind and the entire market focus is on where the governments and central bankers will spend the money.With India’s fiscal deficit hitting 9.2% in 2020-21, domestic liquidity is also very high. The RBI’s move to keep short-term interest rates below inflation rates for a long time is pushing retail investors to the stock market. “Increased fund flow to equity markets now is because the interest rate is very low and investors don’t have too many other options,” says Amit Joshi, CIO, Bajaj Allianz General Insurance. 83256754Economic front offers hope Silver linings can be seen on the economic front as well The decline in new covid cases and the resultant hope of early opening up is the immediate trigger for the recent stock market rally. Also, the government looks to be taking up the vaccine challenge earnestly. “If vaccination is completed by December, the economy can be fully opened by January 2022 and that will push the growth rates in 2022-23,” says Jaspreet Singh Arora, CIO, Equentis Wealth Advisory Services.Higher growth by listed cosLarge organised players are gaining market share from smaller unorganised players. “In economic turmoil like this, bigger companies with better balance sheet and staying power will gain market share. So long as the listed companies are doing well, market won’t be bothered about slower growth in broader economy,” says Joshi. We know that earnings growth in 2021-22 will be fabulous due to low base effect. What about earnings growth beyond 2021-22? “We expect GDP to grow in high single digits and Nifty earnings to grow in low double digits in the coming years,” says Chandramohan. Considering this, experts also predict decent returns in coming years. “Nifty EPS is expected to be between 800 and 850 in 2022-23 and if you take the middle value of 825, Nifty can be at 16,500 with a multiple of 20. Since the interest rate is very low now, higher multiple is also possible,” says Arora. 83256772Themes to play nowThe rally is spreading to broader markets now and this trend is expected to continue in the near future. This means the mid and small cap segments will continue to outperform in coming quarters. “Individual investor participation has increased manifold and around half of the trading volumes now are from retail and HNI investors. Unlike institutional investors, these investors are more interested in mid and small cap stocks,” says Arora.On the sectoral front, long-term investors should stick with themes like pharma, IT, speciality chemicals, etc. because the risk will be low. Short-term investors can bet on bet on cyclical themes like metals or unlock themes like entertainment, hospitality, etc. However, they need to be extra careful because the rally in these themes will be short-lived.

from Economic Times https://bit.ly/3in6bhm
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