Buy on dips with a 3-, 5-year horizon: Emkay Investment Managers CEO

"Our inclination is towards sectors that will participate in economic growth like BFSI, consumer discretionary - including auto, capital goods - infrastructure and IT," says Sachdeva

Lower tax rates, low cost debt, and the government’s willingness to spend have created a fertile ground for the economy to take off, says Vikaas M Sachdeva, chief executive officer of Emkay Investment Managers. In an interview with Ashley Coutinho, he says quality as a factor will make a strong comeback, having been overshadowed by value and momentum over the last few quarters. Edited excerpts:

What is your market outlook for 2022?

Over the past few quarters, the Indian ecosystem has been creating enough tailwinds for businesses to stabilise and succeed. Some businesses have already started showing resilience, which has led to the indices maintaining an upward trajectory, despite volatility. We believe the Indian economy is at the cusp of take-off, after going through Covid-19 related grind over the last 18 months. Lower tax rates, low cost debt, and the government’s willingness to spend have created a fertile ground for that. Quality as a factor will make a strong comeback, having been overshadowed by value and momentum over the last few quarters.

What are the key risks to watch out for?

Inflation has to reduce to more manageable levels. Two, despite bounce back in activities in labour-focused industries like infrastructure and real estate, we haven’t seen meaningful gains on the employment front. A lopsided development that doesn’t include the bottom of the pyramid is not sustainable, and over a period of time can become a politically volatile issue. Hence, gains on the employment front are vital.

What is your take on current valuations?

We would like to believe that the current opportunities businesses are looking at capitalising on are emanating from a once-in-a-generation kind of economic environment. After a long time, there is visibility on private sector capex, which should have a ripple effect. Certain sections of the market have already priced in the earnings of some businesses, particularly the new-age ones, which could see some moderation. On the other hand, there is still scepticism on certain old businesses, and whether they will be able to take the leap forward.

What should investors do?

We believe investors should invest or stay invested in the markets currently. Any dip sho¬u¬ld be bought into from a 3- or 5-year perspective as corporate ear¬n¬ings are looking to catalyse significantly. No valuation metric can ignore growth over the long term.

What are your views on mid- and small-cap stocks?

We are quite upbeat about India’s economic growth over the next 3-5 years and, hence, quite optimistic on earnings growth. Strong economic growth can disproportionately benefit mid- and small-cap companies. We currently have an AIF (alternative investment fund) NFO (new fund offer) open exclusively focusing on these opportunities, with 75 per cent plus of the portfolio already invested in a high conviction, high performance portfolio.

What are the global cues to watch out for in 2022?

While the US Federal Reserve’s actions, oil prices, Chinese economic slowdown are things that should always be on the radar, some political developments that merit attention are the Russia-Ukraine-NATO engagement, the overhang of Chinese build-up in the northeast as well as state elections in India.

Which sectors are you betting on in the coming months?

Since we are quite enthused by structural developments in the economy like lower cost of doing business (taxes and debt), government capex, and deleveraged balance sheet, our natural inclination is towards sectors that will participate in this economic growth like BFSI (banking, financial services, and insurance), consumer discretionary — including auto, capital goods — infrastructure and IT.

What is your take on banking and NBFC (non-banking financial company) stocks?

BFSI should continue to do well. However, we believe investors should invest only in companies that have a moat and a proven track record. The moat can arise from a company’s ability to raise the cheapest money and ability to acquire customers to cross sell. We have seen that the sector has been proactive in provisioning to safeguard itself against shocks, if any, that could have come from Covid. They have raised money through QIPs (qualified institutional placements) and done significant provisions in anticipation of shock, which may not arise.

Is there anything that you would like the Budget to address?

One of the longstanding triggers for growth is mandatory investments in the likes of section 54EA/EB. Including asset management products like PMS and AIF in this list will give a further fillip to long-term equity investing as a counter balance to short-term retail trades, which have started to dominate the landscape.