Outlook for corporate earnings growth is quite strong, in fact at Nifty level earnings are expected to grow at more than 25 percent over two years of FY21-23.

Sachin Shah, Fund Manager at Emkay Investment Managers says that increased economic activity, higher tax collections and exports have helped the market sustain the elevated levels.

Despite the sharp run-up, Shah expects the share market to deliver double-digit returns from current levels by the end of FY22.

Q: Considering the current sentiment at Dalal Street, do you think the rally will continue? Can the market add another 10 percent by end of FY22? 

The primary trend for the market is directionally up, from that perspective it is a high a probability that markets may deliver double digit returns over next 6-7 months. The market uptrend is supported by increased ground level economic activity leading to corporate earnings growth, higher tax collections and also exports growing very strongly. The liquidity, both domestic & international also seems to be quite high due to low interest rate environment.

Q: Does geopolitical tension in Afghanistan, between US-China impact on Indian markets? What are global risks that one has to consider before investing in equity now?

Geopolitical tensions always have some impact on the sentiments, but it’s important that they don’t scale-up beyond a point. Both US & China are matured enough to hold their actions to a point that it will not impact the global trade.

The biggest global risk today we face is on inflationary trends, if inflation is not reigned in than there is a serious risk of interest rates moving up higher and quicker than expected, which can impact the global liquidity and challenges in currency markets.

Q: Government has been doing their best to revive the Indian economy. What more needs to be done? 

The production-linked incentive (PLI) schemes, lower corporate taxes, encouraging new capex by incentivising lower taxes, banking support to SME sector are some of the initiatives that will go a long-way in accelerating the GDP growth over next 3-5 years.

Government also has an elaborate plan to raise resources by divestment of PSUs and leasing of national assets. Funds from this activity if channelized to create more infrastructure could have a significant multiplier impact on GDP growth of the economy.

Q: After 38 IPOs in a span of 8 months in 2021, the primary market activity slowed down a bit as well as listings in August month largely disappointed investors. Do you think it is because of higher valuations or change in overall market mood? Will it impact subscription levels in coming period?

We have had one of the best IPO years in the recent times, a year in which new generation (gig economy), PE backed, and loss-making businesses are getting listed with lot of success. In that sense this year is a watershed / land-mark year in the history of IPOs.

The market sentiment and undertone is still quite buoyant. But there are always some IPOs, which are not good quality or are expensively priced they may have some lukewarm response. Overall the appetite for good & rightly priced IPOs is still very high both from domestic and foreign investors.

Q: Current market rally is just on expectations, and ahead of fundamentals, earnings growth and economic growth. So how are legendary investor Warren Buffett’s value investing lessons relevant for Indian markets in current scenario?

Markets are always forward looking and there is famous saying – ‘Market climbs a wall of worry’ and also ‘What is Relevant is Only Future’, from that perspective most of the successful investors are always looking forward and investing. And right now as I mentioned earlier the outlook for corporate earnings growth is quite strong, in fact at Nifty level earnings are expected to grow at more than 25 percent over two years of FY21-23.

Published in Moneycontrol.com