In the short term, fixed income products are a good bet due to high interest rate scenario, but in long term equity will stand to offer better returns, feels Manish Goel, Founder and Director, Research & Ranking.
BFSI (Banking, Financial Services, and Insurance), Building Materials, Consumer Discretionary, Automobiles and Electric Vehicles (EV), and New Age and Consumer Tech Companies, are good for medium-to-long term, he said in an e-mail interview with Mint's Rakshita Madan.
Goel is a qualified Company Secretary. In 2009, he set up Equentis Capital Pvt. Ltd. - an online research-based equity advisory firm. Research & Ranking is a part of Equentis Wealth Advisory which offers, among other financial products, 5 in 5 Wealth Creation Strategy, which provides a customized portfolio of 20-25 fundamentally sound stocks with a potential of 4 -5 times returns in 5-6 years.
Here are edited excerpts of that interview:
1. What is your view on the Indian market story?
When considering the fundamental factors, our economy offers one of the world’s best investment opportunities. GDP growth is expected to be a robust 6.0-6.5% or higher in the coming years, surpassing any other country. Inflation is under control and decreasing (4.7% in April 2023, an 18-month low), credit growth is strong at 15%, government finances look healthy with robust tax collections and corporate earnings growth outlook is promising, with expectations of a mid-teens earnings growth in Nifty universe stocks over the next two years.
As long as these fundamental indicators remain intact, there is no need to worry about the market levels. In fact, any market correction would present a great buying opportunity for long-term investors to accumulate high-quality stocks.
2. Is it time to stick to stock investing or shift to fixed income products and FDs?
Given the current peak in the interest rate cycle, fixed income products may appear attractive in the short term. However, when considering the double-digit historical returns of our markets over the past two decades, the choice becomes clear for the long term.
In view of the positive macroeconomic outlook and the potential for structural growth in India, a well-constructed portfolio consisting of fundamentally strong and low-risk businesses has the potential to generate returns of 18-20% over the next 5 to 7 years. Consequently, including Indian equities in a portfolio is crucial for long-term wealth creation.
It is worth noting that while equities offer higher growth potential, they also entail greater risks compared to fixed income products. Hence, individuals should carefully evaluate their risk tolerance and investment objectives before making a decision.
3. Which sectors should investors bet on this year?
We have identified five compelling themes that present promising investment opportunities in both the medium as well as the long term. These themes include BFSI (Banking, Financial Services, and Insurance), Building Materials, Consumer Discretionary, Automobiles and Electric Vehicle (EV) Space, and New Age and Consumer Tech Companies.
BFSI (Banking, Financial Services, and Insurance):
BFSI is set to benefit from long-term structural economic growth, with projected nominal GDP growth of 11-12% and corresponding credit growth. Indian banks are well-positioned to lead as the economy continues to thrive. Furthermore, Indian banks are currently in a better financial position than ever before, enabling them to take the lead as the economic momentum continues.
Building Materials:
The building materials sector shows promise due to factors like urbanization, infrastructure development, and real estate growth, driving demand for construction materials. Increasing disposable income levels further contribute to the appeal of this investment theme.
Consumer Discretionary:
The changing demographics, rising income levels, and the expanding middle class create appealing investment opportunities in the consumer discretionary space. Industries such as retail, leisure, and entertainment are expected to benefit from increased consumer spending.
Automobiles and EV Space:
The automobile segment, particularly the growing electric vehicle (EV) market, presents a compelling investment theme. According to the National Family Health Survey, car ownership is currently limited to just 7.5% of Indian households, indicating substantial growth potential. EVs align with global sustainability trends and provide good investment opportunities within the automobile industry.
New Age and Consumer Technology Companies:
Contrary to the prevailing view, we see significant potential in the consumer tech and new-age business segment. Many companies within this space are reporting rising cash flows, improved profitability, and enhanced disclosure standards. By closely monitoring this rapidly evolving space, investors can identify selective but attractive investment opportunities in these innovative technology-driven companies.
4. Which direction do you see RBI rates going? And then accordingly are rate-sensitive sectors a good investment?
The MPC may keep interest rates unchanged until the end of 2023 due to the improved economic outlook. Inflation risks have eased, and there are indications that the US Federal Reserve is nearing a pause in its rate hike cycle, which would provide some relief to RBI. Additionally, there are no major concerns regarding the projected GDP growth rate of 6.0-6.5%.
Consequently, interest rates are likely to gradually decline, creating favorable investment opportunities in both fixed-income and equity markets. However, the timing of these opportunities needs to be carefully considered.