DAILY VOICE | Market trading at slight premium but we are overweight: Nirav Sheth

We are constructive on the market with an overweight stance. Accordign to Emkay's estimates, Nifty is trading at about 18.5 times FY22 estimates - a slight premium over historical average of 16 times or so, Nirav Sheth, Chief Executive Officer, Emkay Institutional Equities, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

A) Reliance Industries (RIL) started investing big monies in telecom/retail in the early part of the decade with a focus on building a sustainable business for the next 50 years.

While RIL has a leadership position in both these businesses, the real value lies in the ownership of 500mn odd customers it owns - eventually, RIL will be able to monetize these eyeballs through credit (think of an NBFC), payment business, entertainment (think of OTT), etc.

The new-age businesses have a deep network effect with extremely high-profit share. RIL @200bn, while expensive is simply discounting the immense opportunities that can be profitably tapped and many outside what analysts have generally modeled.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Q) There is no doubt when people say that Mr Market is the biggest teacher - the real guru. In the last six month we have two different emotions - fear and at the same time greed. What does history suggest how markets tend to behave under such circumstances?

A) The dislocation that we have seen in the economy and in the market is unlike anything seen before. This reminds me of what Warren Buffet had professed "anything that can every happen will happen".

When the pandemic set in, the range of economic and health outcomes was very wide and potentially dangerous. Mr. Market was simply reflecting this in Feb/March.

Since then, extraordinary steps taken by US FED/other central banks and unheard fiscal stimuli has played a big role in stabilizing the economy and the markets.

History reflects a lot but markets are forward-looking - we have enough computer power to model all the possible historical scenarios and yet computers have not replaced smart investment managers. History is static and markets are dynamic.

Q) AMFI data showed that the total outflow from the equity scheme category increased to Rs 4,000 in August compared with Rs 2,480 crore registered a month ago. Is the investment climate-changing for fund managers?

A)  Itis not unusual for investors to redeem money after a sharp rally - especially one that follows a deep cut earlier.

We believe that India has entered a lower inflation trajectory (adjusted for occasional supply shocks in food chain) and even lower interest rates. Alongside this, investor's asset allocation to equities is low. We remain bullish on medium and long term prospects of increased savings flowing to equities.

Q) Sentiment turn sour after global agencies pencilled in a deeper recession in FY21. What are your view as to when we will be able to at least break even? 

A) Our economist is projecting about an 8-8.5% decline in GDP this year and that's near-consensus estimates though there are a few outliers too. We believe that monetary policy has done its job, the fiscal policy is fairly behind the curve.

It's time to put aside excessive fiscal prudence and fill in for the aggregate demand shock. The longer you wait, the bigger will be the need for stimulus. Essentially, the growth outlook will largely be policy-led.

Q) What is your current stand on markets/Nifty - are you neutral, underweight or overweight? And, why?

A) We are constructive on the markets with an OW stance. At Emkay's estimates, Nifty is trading at about 18.5xFY22 estimates - a slight premium over the historical average of 16x or so.

Firstly, earnings estimates after a major economic dislocation are hard to estimate accurately - so there could be upside risk to earnings and specifically from the banking sector.

Secondly, a more important factor is the structural decline in interest rates which has probably reduced the risk premium of investing in equity markets.

Q) After a lull flurry of IPOs hit D-Street in September. What does the IPO pipeline looks like and do you see any interesting IPOs coming up which investors should watch out for, and the ones which have already hit the market?

A) IPO market is on a mend for sure. We also believe that with the recent change in regulations for Multi-Cap Funds will accelerate the supply from small and midcap companies too.

In stock markets, demand creates its own supply. Good issues don't have to swim with high tide. They will attract capital nevertheless

Q)  Loan moratorium extended till 28 September -- how will it impact banking, NBFC?

A) Loan moratorium extension till 28th September does not change anything on the ground. The most critical thing from a bank's perspective is to get a definite sense of slippages that are likely from the moratorium customers.

For delinquent customers, banks will re-structure accounts that offer visibility of viability - rest will slip. Overall, we expect a far better performance from corporate than against retail.

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