Mahesh Patil, Chief Investment Officer (Equity) of Aditya Birla Sunlife Mutual Fund, in an interview with Puneet Wadhwa, said that he did not see any shortage of cash in the market, despite the steep rally and expensive valuations in the market. He says that in this environment of growing market sentiment, special attention needs to be paid to the selection of stocks. Here are the highlights of the conversation:
How is the Indian equity expected to perform in 2021 after the spectacular 2020 performance?
After the Budget, our outlook on the cyclical reforms in the economy and the broad changes in the market has become stronger. A growth-backed budget, positive news on vaccines, better-than-expected economic recovery, continued financial and monetary policy support, and strong liquidity are likely to create a favorable backdrop for stocks. Us
The bull market in equities should be prepared for the long term.
Is market valuation worrying?
Even though the markets are volatile and valuations are now looking expensive after a steep rally, two factors will continue to provide momentum to the market in the medium to long term. First, frequent upgrades to economic growth, and income projections can be helpful in accelerating. Second, in an environment of low interest rates and strong liquidity, the valuation multiple may remain above its long-term average, leading to a high equity valuation.
What has been your investment strategy since the March 2020 lows?
From the lower levels in March 2020, there has been a big change in sector leadership, as concerns about the Kovid and the economy have raised confidence that the epidemic will be under control and economic recovery is visible. Our investment strategy has been to stay ahead. We were initially excited about pharma, IT, and small consumer durables. With positive news on vaccines, we have also included some banking and finance and auto stocks. After the budget, we are assessing the names related to cyclicity in the infrastructure and industrial sectors.
Can you explain your stand on the financial sector?
We are liking private banks and corporate banks. For private banks, asset quality results are expected to be more positive than the prospects created after the Kovid epidemic. In addition, growth in market share based on high capitalization and strong liability franchises remains a good performance factor in the long run. Many PSU banks will need to raise capital, as the amount allocated by the government is quite low.
What is the potential for corporate income growth in FY 2022?
Estimates for FY 2022 showed a significant decrease from late February to September. However, the road strengthened after September and earnings per share estimates have been revised. We expect the Nifty’s earnings growth to be in the range of 35-40 percent in FY 2022 due to lower base for FY 2021.
Can a cash crunch arise in the secondary market as investors focus on companies in the government’s disinvestment list?
Given the loose fiscal and monetary policy at the global level, the world including India is currently endowed with sufficient cash. The confidence of foreign investors has increased, especially in emerging markets like India. This can be gauged from the fact that India has attracted more than $ 3 billion in capital flows so far in calendar year 2021. FII flows are likely to continue further. Non-institutional flows also remain strong in equity markets. I do not see any cash shortage in the markets.