Global risk-on sentiment to support Indian markets: Nischal Maheshwari

With the global markets remaining buoyant as more countries open for business after Covid-19-triggered lockdowns, NISCHAL MAHESHWARI, chief executive officer for institutional equities at Centrum Broking, tells Puneet Wadhwa that foreign investors are likely to increase concentration in export-oriented sectors now. Edited excerpts:

What’s your outlook for the markets for the next few months?

The Indian markets have, so far, been moving in tandem with the global markets, and we expect this trend to continue. The risk-on sentiment has been fuelled by continuous liquidity injection provided by major central banks across the globe, especially the US Federal Reserve. The resumption of global economic activities due to easing lockdown norms has also driven this rally. We see strong support for the Indian markets from the global risk-on sentiment, propelled by the anticipation of continuous liquidity injection from major central banks across the globe, along with the correction in the dollar index.

Is it time the mid-and the small-cap segments played catch-up with their large-cap peers?

Mid- and-small caps have lagged their larger peers in the recent rally. As witnessed historically, large-caps outperform in the near future during phases of economic contraction. Leaders gain market share, as they have strong balance sheets to survive the storm. This time will be no different.

What's your reading of management commentaries of India Inc after the June quarter numbers?

Companies have managed to fare better-than-expected or have met expectations in the June 2020 quarter. Looking beyond the quarter, we will continue to closely examine the evolving macro landscape with regards to supply-demand dynamics and lay more emphasis on the commentary, rather than results.

How do you interpret the recent statements by the Reserve Bank of India (RBI)?

The RBI has decided to remain committed to their prime objective of inflation targeting by maintaining a status quo on policy rates. A clear message is sent that while there exists space for further monetary policy action, it is also important to use it judiciously to maximise the beneficial effects. However, at the same time, the monetary policy committee (MPC) is conscious of its medium-term inflation target. The status quo amid the mounting recessionary fears has been vindicated with an objective of addressing growing headline inflationary pressures in the near term due to supply-side disruptions, which should ease off in the second half of FY21 (H2FY21) and allow the central bank to cut rates then. A one-time restructuring for Covid-19 stressed accounts is definitely a step in the right direction. We have advised investors to opt for operating levered companies over financial levered ones, as we believe banks/NBFCs will continue to face headwinds in FY21 due to higher non-performing assets (NPAs).

Have positives with respect to the strength in the rural economy played out in the related stocks?

We have a positive outlook for the rural economy because of the higher Rabi procurement, timely monsoon, good reservoir levels, and the robust ongoing Kharif sowing pattern. These initiatives, coupled with the government’s focus on rural programmes and the extension of the PM Garib Kalyan Yojna (PMGKY), bode well for rural demand and income. We see increased traction in certain high-frequency indicators (HFIs), such as tractor sales, two-wheeler sales, fertiliser sales, and a decline in the rural unemployment rate. We recommend Hero Moto Corp and Dhanuka Agri Tech on positive rural prospects.

What has been your investment strategy since March 2020 lows?

Since March, we have remained defensive in our approach and recommended investors they be overweight on sectors like fast-moving consumer goods (FMCG), information technology (IT), pharma, and telecom. With increased economic unlocking, it is an appropriate time to increase allocation to a few good auto and cement stocks, as well. We are currently equally weighted on these sectors. Capital goods/infra as a sector should be considered only once normalcy is attained and urban growth prospects are intact. The divestment has been planned for some time now and the names are well known. A substantial part of the undervaluation, if any, has already been discounted in the market. Any upside in PSUs will now come as and when there is a change of hands or a substantially different value is paid.

Do you see foreign investors allocating more towards Indian equities over the next few months?

Certain economies and emerging markets are recovering faster than India. Logically, foreign investors are likely to increase concentration in export-oriented sectors. Within India, since the rural economy is faring better than the urban and its prospects remain intact, investors are likely to prefer rural-focused stocks. Over the long term, if the government continues to lay emphasis on fixing the supply-side, structural bottlenecks and continues to prioritise ‘Make in India’ theme, investors will likely invest in companies that hold potential to be the beneficiary of this theme.