Anirudh Garg, partner and fund manager at Invasset PMS, remains bullish on midcaps and smallcaps. "If the bull run continues into 2024, then midcaps and smallcaps would lead the charge," he says in an interview to Moneycontrol.
Sectors directly associated with capex, such as infrastructure, defence, railways, and power, are expected to be at the forefront, he believes.
The chartered accountant with more than 15 years spent in the stock market predicts that public sector undertakings (PSUs) will emerge as one of the primary beneficiaries of this "old economy" run.
Despite being previously overlooked or even disregarded by fund managers and retail investors, PSUs are poised for a significant revival, he believes. Excerpts from the interview:
Do you expect FII flows to be the highest ever in 2024?
We believe the emphasis on FII activities is disproportionately high. Historical data from the past decade reveals that in seven out of 10 years, net FII activity in the cash segment was negative, with only three years showing positive trends. This pattern raises questions about the persistent focus on FIIs, especially in view of India's evolving economic landscape.
The country is putting up a substantial growth, shaping its economy and market through diligent efforts of regulatory bodies like the Securities and Exchange Board of India (Sebi). This evolution is reflected in the changing preferences of Indian investors, who are increasingly opting for mutual funds and alternative assets such as portfolio management services (PMS) and alternative investment funds (AIF) over the traditional investment avenues like fixed deposits and gold.
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The rise in systematic investment plan (SIP) contributions from Rs 8,023 crore in January 2021 to Rs 17,073 crore in November 2023, and the substantial increase in SIP account assets under management (AUM) to Rs 9.3 trillion as of November 2023, 38 percent higher than at the start of the year, exemplify this shift.
Do you think we are at the beginning of a bull run and it will take the BSE Sensex to the 100,000 mark by 2025?
About the potential onset of a bull market and the BSE Sensex reaching the 100,000 mark by 2025, our analysis suggests that we might not be at the early stages of a bull run. Our algorithms indicate that the bull run, which commenced at the 15,200 level in June 2022, is currently positioned between 21,500 and 22,000. This indicates a phase where the market is neither overly cheap nor excessively expensive.
The recent political developments, particularly the BJP's victory in the heartland states, have provided a clear trajectory for the country's economy over the next five years. This political stability instills confidence in investors and reinforces the belief that India could lead global indexes in the coming years.
When discussing the prospect of the Sensex reaching the 100,000 mark, we're contemplating approximately a 40 percent increase. Historically, the Sensex has grown at an average of 12 percent annually over the last 5 to 10 years.
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If you expect the bull run to continue in 2024, then which are the sectors that will be in the leading position?
In anticipation of the bull run continuing into 2024, we project midcaps and smallcaps to lead the charge, offering significant value. The Indian government's allocation of 19.5 percent of its budgetary expenditure toward capex, especially as we approach an election year, sets a resolute tone and underscores the importance of sustained investment in growth and development. Consequently, sectors directly associated with capex, such as infrastructure, defense, railways, and power, are expected to be at the forefront.
We predict that public sector undertakings (PSUs) will emerge as one of the primary beneficiaries of this 'old economy' run. Despite being previously overlooked or even disregarded by fund managers and retail investors, PSUs are poised for a significant revival.
Lastly, there's a tendency in the stock market to counter the Federal Reserve's narrative. With the Fed indicating that inflation is under control, we believe this will indeed be the case, and sectors that have been lagging due to interest rate concerns, such as real estate and commodities, will begin to rally.
What's your stand on the oil and gas space?
Our perspective on the oil and gas sector is cautiously analytical, recognising the intricacies of this field, particularly as India is a major net importer of oil. The global shift towards alternative energy sources and India's firm commitment to renewable energy and exploration of alternatives like hydrogen suggests a decreasing reliance on oil over the next decade.
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We anticipate oil prices to find an equilibrium at $60-75 per barrel, though they remain vulnerable to geopolitical events that can cause abrupt price fluctuations. For oil marketing companies (OMCs) in India, the operating environment is complex, balancing government priorities and market forces. These entities, often government-owned and selling directly to consumers, are influenced significantly by political agendas, especially considerations of re-election, which may prioritize public welfare over profit maximisation.
In contrast, our outlook on the gas sector is decidedly bullish, especially concerning the expansion of gas pipeline infrastructure in India.
Do you expect 2024 to be another great year for the auto space? The Nifty Auto index was up 44 percent in the current calendar year...
Considering the prospects of the auto sector for 2024, we acknowledge the cyclical nature of the industry, where vehicles typically require replacement every 5 to 7 years. The performance of auto companies is fundamentally influenced by two factors: product demand and profit margins.
The Nifty Auto index's recent 44 percent increase reflects a period of exceptionally high demand and profit margins, the latter buoyed by input costs remaining at their Covid-era lows.
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Looking ahead, as the Federal Reserve shifts towards rate cuts, we expect mixed implications for the auto sector. On one hand, reduced rates may decrease the cost of loans, potentially stimulating demand. On the other hand, an anticipated rise in global metal and commodity prices could significantly inflate input costs for these companies.
While not necessarily predicting a decline, we suggest that the auto sector may not lead the market over the next 2 to 3 years. The anticipated changes in economic conditions, including rate adjustments and input cost increases, could dampen the sector's stellar performance seen recently. Investors should carefully weigh these factors and maintain a balanced perspective when considering the auto sector.
Do you think the Federal Reserve will not go for aggressive rate cuts in 2024?
Regarding the Federal Reserve's anticipated approach in 2024, we foresee the possibility of at least three rate reductions, contingent on the global geopolitical climate remaining stable. The past few years have been marked by a series of significant events, from the Covid-19 pandemic to the Russia-Ukraine conflict and the Israel-Hamas war. These events, alongside potential new crises such as tensions between China and Taiwan, highlight the precarious nature of the global situation.
However, if the geopolitical landscape remains relatively stable, the current state of the metals sector—with prices of final products at their Covid-era lows—indicates a pressing need for economic stimulation. In such a scenario, rate cuts would be a logical response to foster recovery and revival.
Do you expect the primary market to remain strong in 2024 too? Will the fundraising and number of IPOs be higher than in 2023?
The outlook for the Indian primary market in 2024 is generally positive. The Indian stock market, specifically the BSE Sensex, demonstrated a strong performance in 2023, recording a 19 percent return and reaching an all-time high. This trend is expected to continue into 2024, driven by factors such as an ongoing investment cycle and manufacturing recovery. Market express confidence in the sustainability of growth due to increased investments and manufacturing activities, despite concerns about elevated valuations in large caps.
In terms of the IPO market, 2023 witnessed a record-breaking 57 IPOs, surpassing the previous year’s count. However, the total funds raised did not keep pace with the number of IPOs. The outlook for 2024 remains optimistic with the anticipation of major IPOs like Ola Electric, PhonePe, and Swiggy, among others. It's crucial for companies to be adaptable and cautious, considering market volatility's impact on IPO performance.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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