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'Investors should keep them on their radar and invest over a longer time frame, and expect some of these companies to bite the dust.'
Samvat 2077 had seen a stupendous liquidity-driven run for the equity markets.
As they usher in a new year (as per the Hindu calendar), Krishna Kumar Karwa, managing director, Emkay Global Financial Services, tells Puneet Wadhwa that stocks will track earnings and valuations, and companies whose prices reflect optimistic outlook three-four years hence are the most vulnerable to corrections.
How do you see the markets play out in the new Samvat?
Over the past one year, the Nifty has delivered a 50 per cent return, and the small, mid-cap indices broadly delivered around 80 per cent returns.
Over a three-year period, Nifty mid and small-cap indices have delivered 90 per cent returns.
It will be unfair to assume that the benchmark indices will deliver similar returns in the short term.
A carefully constructed portfolio should deliver 12-15 per cent compound returns over the medium term.
What is the portfolio construct you suggest to harness these returns?
Right from information technology, domestic manufacturing, real estate, to financial services, capital market intermediaries, and capital goods -- all these sectors are expected to do well over the medium term.
Investors can generate significant wealth by investing in domestic equities in the medium term.
What are the key risks to the markets in the new Samvat and to what extent are they pricing them in at the current levels?
Macro headwinds like high oil prices, supply chain disruptions, the debate on transient versus sticky inflation, the possibility of hardening interest rates across the globe, internal economic challenges in China and its global ramifications, and the ongoing US-China spats will keep markets volatile.
The markets are currently not fully discounting these headwinds.
That said, stocks will track earnings and valuations, and companies whose stock prices are reflecting an optimistic outlook three-four years down the line are the most vulnerable to price and time corrections.
Do you see liquidity being pulled out of the markets as investors turn their attention to the primary markets, given the slew of initial public offers lined up?
There is abundant liquidity in the system.
Global liquidity, in the medium term, could be at risk with the expected tapering by the US Federal Reserve, and subsequent rise in interest rates.
Domestic investors do not have too many choices to deploy savings in light of the prevailing low interest rates.
Liquidity will flow to primary or secondary markets depending upon the opportunities available.
Unique technology-led IPOs, where there are no listed comparable alternatives, will attract interest.
Investors seem to be ignoring current earnings of new-age firms and are betting on future projections. Is this worrying?
I do not think there is a clear answer to this.
Many of these new-age firms address large business opportunities that can disrupt existing business models.
At present, massive global capital is available to such firms to fund losses as they build businesses.
Traditional cash flow focussed investors will not be able to justify the valuations of such businesses.
That said, investors should keep them on their radar and invest over a longer time frame, and expect some of these companies to bite the dust.
These new-age businesses are not going away; ignoring them completely can be injurious to one's portfolio's health.
How do you see corporate earnings shape up over the next few quarters?
Rising commodity prices are a matter of short-term concern as corporates try to balance between maintaining margins and sustaining demand at higher price points.
At present, we do not believe that there is any risk to consensus earnings estimates, unless supply-side disruptions do not ease in the next few quarters and pent-up demand for manufactured goods eases.
Feature Presentation: Aslam Hunani/Rediff.com
