ETMarkets Smart Talk: Stay invested! Indian equity market likely to outshine peers in equity space: Pradeep Gupta

“We do not expect any significant downside to the equity market even from a 6 to 9 months perspective. Thus, in comparison to its peers, we still believe that Indian equity will continue to outshine in the equity space,” says Pradeep Gupta, Co-founder & Vice Chairman, Anand Rathi Group.

In an interview with ETMarkets, Gupta, said: “We like financials, information technology and investment theme related sectors such as capital goods” Edited excerpts:

Record highs before completing the year 2022. Where are markets headed?
The earning season so far has been broadly in line with expectations. On the margin, there seem to be slightly more positive versus negative surprises.

This seems to have emboldened investors and that in turn has resulted in a noticeable rally in the equity markets in the recent past.

From a structural medium to long-term perspective, we remain positive on equity as an asset class and continue to believe that Indian equities will deliver better risk-adjusted returns compared to most other major markets.

We also think that a significant part of the likely negative developments in the near future including recession in Europe, possible recession in the US, continuation and perhaps escalation of Russia Ukraine war, low decline of the inflation rate, and continued monetary tightening by the major central banks are already in the price.

Therefore, despite a likely increase in volatility, we do not expect a significant correction in the equity market barring unexpected negative developments.

The recent rally seen in the Indian market stands out when we compare it to EMs. The rally also makes Indian markets slightly expensive compared to global peers. Will India be able to hold on to the outperformance?
The growth rate of corporate earnings is slowing down substantially. This trend is likely to continue. Having said that, there has been a substantial downward revision of earnings growth expectations by analysts.

In view of that, a modest upside earning surprise over the next 12 months cannot be ruled out. At the same time, there has been a significant de-rating of valuation multiples over the last year.

A major reason for this could be a sharp increase in discount rates. It is expected that the policy rates would stabilise in the first half of 2023.

With this expectation, there can be a modest re-rating of valuation multiples. This can counterbalance the deceleration in earnings growth.

Overall, we do not expect a significant downside to the equity market even from a 6 to 9 months perspective. Thus, in comparison to its peers, we still believe that Indian Equity will continue to outshine in the equity space.

Where do you see the next set of leaders emerging from?
In terms of emerging space, as mentioned above, we are continuing to be overweight on Indian equity and would want to stay overweight on Indian equity instead of any other emerging market space.

Any sector(s) which you think investors can pare their holding as well move towards record highs because it might have already run up?
We like financials, information technology, and investment theme-related sectors such as capital goods.

Should one consider rejig their portfolio as markets create history?
We strongly believe that investment strategy has to be anchored in strategic asset allocation. There is no one size fits all strategy for all types of investors.

Strategic asset allocation depends on numerous factors including investor’s risk appetite, return expectation, investment horizon, cash flow situation, etc.

Once the strategic asset allocation is made, any change in this should be done only if there is large and persistent divergence from the expected risk-return dynamics.

Short-term market movements and news close, in particular, should not be major considerations for changing investment strategies.

Now that bulls have again taken control of D-St do you see more IPOs making their comeback to D-St? We have already seen a few in Oct-Nov. Any particular IPO(s) which you are looking forward to?
I do feel that we will have a few good IPOs hitting the market in the near future, there has been good domestic liquidity being built up in the markets and maybe in 6-7 months’ time frame, we can definitely see some good IPOs.

How do you see export-linked sectors faring in the near future?
As mentioned earlier, we like financials, information technology, and investment theme-related sectors such as capital goods. In contrast, we are negative on global cycles such as oil and gas and metals.

We are also negative on consumption theme sectors such as consumer durables, automobiles, and to a lesser extent even the FMCG sector.

Your biggest upgrades or downgrades post Q2 results?
As expected, the growth rate of corporate earnings is slowing down substantially. This trend is likely to continue. Having said that, there has been a substantial downward revision of earnings growth expectations by analysts.

In view of that, a modest upside earning surprise over the next 12 months cannot be ruled out. At the same time, there has been a significant de-rating of valuation multiples over the last year.

A major reason for this could be a sharp increase in discount rates. It is expected that the policy rates would stabilise in the first half of 2023.

With this expectation, there can be a modest re-rating of valuation multiples. This can counterbalance the deceleration in earnings growth.

Overall, we do not expect a significant downside to the equity market even from a 6 to 9 months perspective.

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