Manish Goel, Founder and Director of Research & Ranking, believes corporate earnings may grow 14-15 percent in FY23 and 19-20 percent in FY24. In an interview with MintGenie, Goel said he believes rural consumption, discretionary consumption, and exports related to manufacturing, EV, renewable energy and banking may do well in the next one year.
What is your medium-term outlook for the market? Are we going to see a change in sentiment anytime soon or will it be 2022 redux, at least till the first half of 2023?
There is no use trying to predict market sentiment either in the short or medium term - it is ever-changing. Instead, we should focus on market fundamentals.
The market fundamentals are very strong, so there is little room left for doubt in regard to market performance.
In these troubled times, India has remained the most resilient economy in the world.
According to the recently released advanced estimates of MOSPI, India's real GDP growth is expected to be 7 percent in FY2022-23 and higher at 15.4 percent in nominal terms.
Even the World Bank has recently revised its estimates of India's GDP growth from 6.5 percent in October to 6.9 percent. There are other positive indicators as well.
The Consumer Price Index (CPI) has moderated for the second consecutive month to 5.72 percent year-on-year (YoY) in December 2022. If this continues, we may soon be discussing the possibility of interest rate cuts.
Additionally, Industrial Production Index (IIP) rebounded strongly in November, with a healthy 7.1 percent YoY growth.
This is approximately 5 percent higher than the pre-pandemic level three years ago. These positive indicators point to a healthy stock market performance in the medium term.
More specifically, we can expect corporate earnings growth of 14-15 percent in FY23, and a healthy growth rate of 19-20 percent in FY24.
This means that the Nifty could reach 21,000-22,000 within the next year.
The US Fed appears to be the biggest trigger for the market at this juncture. Even a small cue regarding the rate hikes influences the mood of the market. Why has the market failed in fully discounting rate hikes?
I feel that India has decoupled quite noticeably from the US markets. Hence, we don’t place too much importance on what the Fed’s next move will be.
Fed increased the base rates eight times last year, taking it up from 0.25 percent to 4.5 percent.
They did not deviate from the expected lines except once. The current plan is to take the rates up to 5 percent in 2023 and then keep it steady at that level.
Further, in the US also, inflation has started trending down and thus, eventually, a growth focus would emerge.
Having said that there might be a few short-term reactions to the numbers that emerge from the US markets but investors should not worry too much about it as the long-term performance of the Indian markets is still going to be driven by the strong domestic factors we just discussed.
What are your views on the early trends of IT earnings? Is the worst behind for the sector?
The leading IT players have seen positive results in terms of revenue growth, surprising the market. However, a lot of these gains come from pre-existing deals rather than new ones.
The current demand environment is uncertain, due to budget cuts and decision delays at the clients' end.
It is difficult to say how well the companies will do in the future based on their performance in the past quarter.
There is a mix of factors at play when it comes to margins. For example, attrition rates have been decreasing while utilisation levels are on the rise.
However, travel costs are going up, along with increased costs of sub-contracting and pay hikes are putting pressure on margins.
We believe that while the sector valuation may have corrected, it still remains elevated compared to long-term averages.
So, while we don't have a blanket positive view on the sector, we think that bottom-up stock picking can be a good strategy, where exposure towards regions and segments they operate in will be the main criteria for our stock selection.
We have seen strong gains in banking stocks. Since most positives about the sector are already on the table and the valuations have also jumped, are we near the end of the bullish trend in the banking sector?
End? On the contrary, I believe that the Indian banking story is just getting started.
We are projected to grow from a $3 trillion economy to $5 trillion in the next three-four years and then to a $10 trillion economy in the next 10-12 years.
We are talking of a good 11.5-12 percent CAGR growth in nominal terms.
We all know that there is a positive relationship between economic growth and the demand for credit in a country.
The current banking credit to GDP ratio in India is lower at 58 percent compared to other comparable economies.
Even if we don't expect this ratio to improve, we can safely say that credit growth in India should range between 12-15 percent over the next decade.
I believe that the growth of the Indian banking system will be stronger than ever before due to the low levels of non-performing assets (NPAs) and the high capitalization levels.
With such strong drivers in place, Indian banks will likely be the main beneficiaries of the country's economic growth story.
Where is the money in this market? What sectors can give healthy returns in the next one year?
There are a number of sectors that are expected to do well in the next one year.
These include rural consumption, discretionary consumption, exports related to manufacturing, EV, renewable energy and banking.
India's rural demand has been weak in recent years, but we think the government will provide some assistance to revive it.
Furthermore, we expect discretionary consumption to grow stronger, lifted by increased incomes and digital transformation powered by the India Stack (UPI for payments, Aadhaar for EKYC and ONDC for eCommerce).
The continued global focus on supply chain diversification and the Indian government's continued push to bring more sectors under the production-linked incentive scheme (PLI) is expected to benefit export-oriented manufacturing.
Then, of course, the electric vehicle space would continue to see an increase in demand supported by policy push.
Even the renewable energy sector is anticipated to grow given the government’s goal is to increase the renewable mix in power generation to 60 percent by 2030 from the current 40 percent.
Finally, the banking sector is one of the most important sectors to watch out for by any investor.
Growth in lending improved access to banking services, and ease of transaction provided by the tech infrastructure will be the key drivers of growth in this sector.
What are your expectations from the Budget for 2023? What should retail investors watch out for in this Budget?
The FY24 Union Budget should remain focused on pro-growth initiatives such as continued investment in infrastructure and capacity development.
Also, since it will be an election year, the government may announce some benefits and policies aimed at the rural sector to boost languishing demand.
Although we cannot expect significant fiscal consolidation in this Budget, we hope that the government provides a clear glide path to achieve the fiscal deficit target of 5-4.5 percent by FY25 or FY26.
Here are the themes we expect to see in this year's Budget announcements:
1. Rationalization of personal income tax to encourage consumption.
2. Focus on rural infrastructure projects to generate employment.
3. The continued push for manufacturing through PLI.
4. Increased capital expenditure towards infrastructure projects.
5. A clear roadmap to reduce the fiscal deficit to 6 percent of GDP by FY24 and 4.5 percent by FY26.