The economic news headlines would largely be dominated by growth fears and measures to revive them in FY20, the performance of asset prices would be better albeit with elevated volatility, said Vaibhav Sanghavi of Avendus Capital
The Nifty returns would follow corporate earnings growth rather than P/E re-rating. In the coming year, we do expect earnings would grow by about 15–17 percent, Vaibhav Sanghavi, Co-CEO, Avendus Capital Public Markets Alternate Strategies LLP, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q: As FY20 has begun, concerns over global slowdown have clouded equity market outlook. Should investors back in India be worried?
A: The period between 2008 and 2018 has been a period where the global economy has been struggling for growth despite monetary and fiscal measures.
During this time, a lower interest rate environment along with very supportive liquidity has helped asset prices. On the back of global growth fears returning, going forward, I believe that interest rates will top out, inflation would remain benign and liquidity accommodative.
Amid this, India’s growth is expected to be robust on the back of consistent consumption and revive investments. The corporate earnings outlook is much better than in the previous five years, led by banking and financials. This all augurs well for the Indian market to perform better than global peers in the next few years.
Q: What is your target for Sensex or Nifty in FY20?
A: For FY20, my expectation is that the Nifty returns would follow corporate earnings growth rather than P/E re-rating. In the coming year, we do expect that the earnings would grow about 15 – 17 percent. Thus, a similar kind of return can be expected, provided tail risks from global or local factors do not hit the market.
Q: Which theme is looking more promising: largecaps or mid and smallcaps?
A: Largecaps have a tendency to outperform during turbulent and volatile times. Once elections are over, and provided there is no fresh negative variable, we should see broad-based performance across the equity market.
Q: What is your view on the currency for the next 6-12 months?
A: Fundamentally, INR is overvalued at the current levels. However, looking at what is happening across global economies, currencies might be used to gain an upper hand in trade. This will likely make currencies volatile.
Q: Which sectors are likely to remain in limelight in FY20?
A: Our GDP is likely to grow on the back of consistent consumption and revival in investments. Sectors like consumptions (staples and discretionary), industrials and banking are our preferred sectors. We expect private capex to revive in the second half of FY20 as the system-wide capacity utilisation inches up.
Q) What are the factors which are likely to impact markets in FY20?
A: The biggest variables for the markets would be the outlook on interest rates and overall systemic liquidity, global and domestic.
Along with it, revival in corporate earnings will be watched keenly. On the risks, the slowing global economy and an adverse election result can dampen the short term market sentiment.
Q: How is FY20 likely to pan out for investors and markets at large?
A: While the economic news headlines would largely be dominated by growth fears and measures to revive them, the performance of asset prices would be better albeit with elevated volatility. The markets have the potential to fair better than FY19.
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