'Equity markets should remain in favour in 2022'

'The markets have corrected almost 8-9 per cent from their highs, so one can accumulate quality stocks at reasonable prices.'

As the markets usher in 2022 with a sense of cautious optimism against the backdrop of the latest Covid variant, Nischal Maheshwari, CEO, for institutional equities at Centrum Broking, tells Puneet Wadhwa, "The equity markets are reflective of India's growth story and should remain in favour during 2022 as well."

The markets have been unable to sustain at higher levels despite the intermittent bounce-back. What's making them nervous at this juncture?

There are two factors to be considered here.

First, the surge of Covid cases owing to the Omicron variant is leading to significant uncertainty.

Many Western countries have imposed partial lockdowns.

Many states in India, too, have imposed curfews, which could lead to disruptions in trade and supply chains once again.

The second is the case of surging inflation, owing to supply-side issues.

The Reserve Bank of India has held rates constant for a long time.

However, with increasing commodity prices, a rate hike is imminent, thereby leading to the withdrawal of liquidity from the markets.

Would you classify the Indian equity markets as 'sell on a rise' or 'buy on a dip'?

Buy on dips.

The reason is that the markets have survived two lockdowns and the impact of the pandemic seems to have caused only a minor dent in our resilient economy.

The markets have corrected almost 8-9 per cent from their highs, so one can accumulate quality stocks at reasonable prices during these correctional dips, as India's long-term growth story remains strong.

What risks are still not fully priced in?

The equity markets are reflective of India's growth story and should remain in favour during 2022 as well.

Risks that are not currently fully priced in are rising inflation and withdrawal of liquidity from the markets.

Inflation will take some time to be brought under control, as it is a factor of interest rates and the supply-side issue.

What is the average return you expect from equities in developed markets and emerging markets? Will India outperform?

During the past 12-18 months, Indian equities outperformed EMs in terms of returns.

Going forward, return expectations will moderate on a higher base, resulting in the indices performing broadly in line with other EMs.

With the US tapering strengthening the dollar, foreign investors are likely to re-evaluate their holdings in Indian equities, at least for the near term.

Can corporate earnings disappoint in the next two quarters, given the possibility of micro-lockdowns across key Indian cities and how commodity prices play out?

So far, Omicron has had little impact on the Indian economy and is something that has largely been factored in.

India is expected to close the current fiscal year with GDP growth reading of 9.5 per cent.

This along with the RBI's accommodative interest rate stance should maintain growth in corporate earnings.

Elevated commodity prices remain a worry.

However, a commodity supercycle is not in sight and even crude prices are likely to moderate on increased output by OPEC nations.

Therefore, we do not see much disappointment on an earnings front.

What are your sector preferences for 2022?

We continue to remain defensive in our outlook; we are positive on stocks with stable earnings and regular dividend payouts, irrespective of market conditions.

We are, however, overweight on IT and pharma, given their consistent demand.

We also like the cement and construction space, given the push for affordable housing in small cities and the rising demand for real estate.

What are your expectations from the December 2021 quarter numbers of India Inc?

Since this quarter is generally dominated by the festive season, we expect several sectors -- such as consumer durables, auto, including two-wheelers, and part of residential real estate -- to spring positive surprises.

However, we will wait for the first set of numbers to come in, given the uncertainty surrounding Omicron.

We continue to remain bullish on the IT sector and believe it should deliver stellar results for the quarter.

In terms of economic and other policies that govern the Indian capital/financial markets, is there anything that you would like the Budget to address?

Tax collections are moving up due to better coverage and compliance.

It is true that the fiscal situation has been impacted due to Covid but there is resilience in tax collections and underlying growth is adequate to cover this.

Further, with inflation coming back, taxes in nominal terms will grow faster than initially assumed.

Given the circumstances, there is room for goods and service tax (GST) rates to be rationalised/cut given the buoyancy.

From a capital markets perspective, clarity on the government's stake in the five-six PSUs lined up would be an event to look out for.

Additionally, the much-awaited parity on taxation of listed debt securities and debt mutual funds would be welcome.

Feature Presentation: Aslam Hunani/Rediff.com