In an interview with ETMarkets, Banerjee said: “FIIs reversed their selling trend and collectively purchased equities amounting to ₹2,061 crore in the current month of June,” Edited excerpts:
June has been a volatile month for the Indian market, but bulls managed to keep the momentum going and pushed benchmark indices to fresh record highs. What is fuelling optimism?
The initial scepticism about government formation, which developed on the date of declaration of election results, was primarily due to the results coming much in contrast from the previous day’s exit poll results.
However, this element of uncertainty was short-lived as clarity emerged on the continuity of the previous government and its policies on steering the economy towards making India the third largest economy of the world by year 2030.
The market participants are convinced that the macro fundamentals and the fiscal condition of the country is very strong and India is poised to grow as the fastest-growing economy of the world for the next few years.The forex reserves are at an all-time high, therefore, the currency stability is ensured, the current account deficit has moderated to 0.7% of the GDP in FY24.
India is being included in the JPM EM index effective from 28th June’ 24. This will bring inflows to the tune of $25-30 billion in FY25, which is a very big positive for the debt market and will evoke a lot of interest amongst foreign investors. These are some of the factors which are fuelling optimism in the market.
We have also completed 6 months of the year 2024 – how is H2 2024 looking? What are the important trigger points that investors should take note of?
The fundamentals of the economy remain strong. India’s GDP growth will be the fastest among the larger economies of the world. We expect the government to stay on the path of fiscal consolidation.
The corporate balance sheets are appearing strong, the health of the banking sector is perhaps the best at this point of time. We are already seeing corporate capex announcements and plans in place with few M&A activity as well.
So overall, the sentiment will remain positive. However, having said that, some catch up remains to happen in the rural and consumption sector, which I expect will surely be on the government’s radar in the future, enabling a more even economic recovery.
I guess the market is now looking forward to the government’s next full-fledged budget which will be presented in Parliament towards the end of July. The fiscal policy to be followed, RBI’s monetary policy announcements, and any geopolitical event that can have a significant impact on India’s economy are some of the key trigger points presently.
The market is breaking new records every day and retail investors are buying the dip – the one like we saw post elections. How are retail investors picking stocks?
The market is now almost regularly creating new records, Sensex crossed 79,000 and Nifty crossed 24,000 level maintaining their bullish momentum right from the beginning of June.
The momentum got further strengthened after the presidential address to the joint parliamentary session, which outlined the government’s thought-process on the proposed Union budget.
The recent upward movement in the indices is primarily driven by index heavy weights. The Foreign Institutional Investors (FIIs) have remained out of the markets for some time and have exhibited early signs of coming back to the market.
The Domestic Institutional Investor (DII) flow continues unabated. Whilst there isn’t any specific information on the retail investment pattern, we observe that some retail investors are investing on the themes playing out and some are still preferring to sit on cash, waiting for corrections to happen before entering the market. A majority of the retail investors have opted for the SIP route rather than trying to time the market.
How are earnings likely to pan out in the next 6 months? A recent trend suggests that prices have run up ahead of earnings upgrades.
In the last financial year, the earning levels were substantially high, except for the IT and pharma sectors. However, in view of the general elections across the nation, for the first two months of the quarter, the activities remained quite subdued.
The sales across various sectors have been quite adversely impacted and extreme heat waves across the country aggravated it further, except for items like air conditioners, coolers, refrigerators, etc.
The activities have started picking up now, so we can expect earnings to be in the level of mid-teens range in H1.
What are your expectations from the Final Budget 2024?
We expect the government to stay on the path of fiscal consolidation. Although there are certain apprehensions about the adoption of populist measures due to the election verdict but with the fiscal room generated by the RBI dividend and buoyant tax collections, this is unlikely to impact the pace of consolidation.
The core themes of the government’s push for capex and infrastructure will remain at the forefront. We can expect continuity in policy reforms with some measures/schemes leading to an increase in the rural consumption levels.
How are FIIs looking at Indian markets?
FII ownership at 16% is probably the lowest level of ownership. At the peak, we had 24% of the market owned by FIIs. In between, we have seen a huge sell-off happening from the FII side, that was counterbalanced by DII inflows, which helped the market to maintain stability and continue the momentum.
FIIs have observed that the Indian economy is very robust with strong macro fundamentals and strong balance sheets at the sovereign, financial sectors, and corporate levels.
FIIs reversed their selling trend and collectively purchased equities amounting to ₹2,061 crore in the current month of June.
Meanwhile, DIIs maintained their buying streak for the 13th consecutive month, acquiring equities worth ₹21,975 crore so far in June.
What about small & midcaps? Are there still stocks available at attractive valuations considering the run up we have seen in this space or does the valuation methodology have to shift now?
Over the last year, the mid-cap index rallied 53.5 percent and the small-cap index surged 61 percent, compared to a 22 percent rise in the benchmark Nifty.
However, in the last month, while the mid-cap index outperformed the benchmark, the small-cap index trailed. The Nifty rose 1.2 percent in the last one month, whereas the mid-cap index advanced 3 percent and the small-cap index added just half a percent.
The valuations of both mid- and small-cap stocks at a broader level remain stretched as compared to large cap stocks.
On a TTM basis, the valuations of Large cap stocks are prevailing at 23.6 x vs Mid-cap 41.7x and small cap stocks at 29.3x.
However, by following the bottom-up approach in stock selection within mid and small cap stocks, one can still pick up some good stocks at an attractive valuation, but momentum buying or buying on mere hearsay can prove to be risky now.
What are the themes that will be in focus in the next 6 months?
We expect the core themes of the government’s push for capex and infrastructure will remain at the forefront.
Hence infrastructure sector, capital goods sector, railway stocks, engineering, financial sector will be in focus.
Apart from these pharma sector and selective IT sector stocks, auto stocks are looking good.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)