India’s share market may see up to 10 per cent correction in the short term. The nation’s economy, grappling with the 2nd wave of Covid-19, may not see a revival as swift as that seen after the 1st wave, says investment advisor Sandip Sabharwal. In an interview with Surbhi Jain of Financial Express Online, Sandip Sabharwal said that the market valuations are not expensive if 35 per cent earnings growth is for real. Sabharwal finds platform companies well placed amid rising digital transactions and trends, but also says those are extremely richly valued. On the IPO front, he advises investors to allocate carefully as there is little left for investors given the issue prices.
Sensex, Nifty are riding at all-time high levels. What’s driving this rally?
Liquidity is driving the rally as always. The earnings growth estimates for next year if I take into account all broking houses projects varies between 32-40%. While one might argue that this should be possible because last year the first quarter was a washout, it does not take into account a possible increase in interest rates at some stage, and the huge pressure that rising commodity prices, as well as a return of normal costs, can put on the profitability of companies. With an expected GDP bounce back of 12% an earning growth of 30-35% should be possible under normal circumstances. However, when input costs move up by 50-100% and the economy is just recovering this could become a challenge and that is what I will be monitoring. However, a recovering economy will give huge investment opportunities at the right time.
Many recovery plays have been corrected post the start of the second wave in India. These will provide very good opportunities. Capex cycle recovery and infrastructure and green investments are a reality and companies in these segments will also give good opportunities. Many fancied sector stocks are currently expensive and as such can only be bought on corrections. Overall market valuations are not expensive if we believe that 35% earnings growth is for real. However if we trend towards 25% then markets look quite expensive.
Among 4 IPOs this week, which one is your pick and why?
All four IPOs are very richly valued. Most investors have been flocking to IPO’s expecting strong listing gains. However, investors should allocate carefully as there is little left for investors given the issue prices.
What’s your Sensex and Nifty target both in the short and long-term?
Short term I am looking at a 5-10% correction. Directionally the trends are positive however absolute gains will be limited given the market valuations. There is better value in the broader markets and that is where opportunities lie.
Within the banking sector, where do you see opportunities to make fresh investments?
Right now the banking sector is in a tough space with credit growth slow and retail delinquencies picking up. In this situation large banks with subsidiary values like ICICI Bank will stand out. Overall given the spike in inflation as well as slowdown in the economy results might underperform analyst expectations in general and as such banking should underperform the overall markets. Large corporate delinquencies are likely to be low but MSME-exposed banks will see stress.
What is your view on platform companies amid rising digital trends?
Platform companies are well placed however are extremely richly valued. Such valuations are tough to sustain long term as most of these companies don’t have significant MOAT’s. New investors should typically wait for market panics to allocate to such stocks.
Where do you see the commodity cycle heading?
The US Dollar seems to be bottoming out and typically we have seen that USD rallies and commodity prices are inversely correlated. There has been a big move in commodities, I expect correction and consolidation over the next 3-4 months before any further gains take place. Given the fact that commodity stocks are leveraged to the underlying commodity prices we could see some correction come through there too.
What should be the investment strategy of retail investors at the moment? What are the stocks that they can look at?
Retail investors should allocate slowly and spread out investments. Typically the investment cycle stocks and capital goods stocks look well placed as they are under owned. Exporters like textiles and IT also have opportunities to invest into. Specific pharmaceutical stocks might also do well. Essentially now it’s a stock pickers market. High value consumer and automobile stocks should be avoided along with financials in the near term.