Q2FY22 preview looks better than Q1FY22: Vinod Nair, Geojit Financial

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The reopening of the economy and upcoming festive season will upgrade the future outlook.

The decline in medium and small companies is an opportunity as there has been a good correction in valuations on the back of earnings gains.

With the gradual reopening of the global economy, the situation will reverse. However, there is an increased risk of Rising bond yields, inflation, and commodity prices, as well as China’s energy crisis, have moved the world. The Indian stock market is no different. Taking a look at current market volatility and FY22 second-quarter results, Money9 spoke to Vinod Nair, head of research at Geojit Financial Services, to find out the impact of global news on financial markets and what to expect from the upcoming earnings session. Here are edited excerpts from the conversation:

What do you think of the market? Is it buying in the low market or selling and waiting for the market correction?

In the near term, buying on dips will be the better strategy. However, on a medium-term basis, it will be difficult to maintain the same uptrend due to global volatility, thus selling on rallies. While doing so, build a mixed portfolio of stocks, debt and gold based on your risk profile.

Energy shortage in China refers to shortage of global goods and commodities, how will it affect India?

India is not a big exporter of such goods and commodities. This will have a mixed effect on the Indian market, as the integrated manufacturer will benefit from higher prices, while the broader market will be affected due to lower profits from higher costs.

According to CEA data, could India also see a China-like scenario where coal reserves deplete to 9.3 million tons, the lowest level since October 2018?

There are various speculations about what is happening in China and the reasons for the shortage of goods and electricity. It could be a combined effect of Evergrande, public complaints over real estate, import restrictions announced by China due to COVID-related allegations by other countries and the government’s focus on real estate and infrastructure spending to restore economic growth. A similar effect is unlikely in India, although supply chain problems and a sudden increase in electricity demand will have an impact in the short term.

Inflation is increasing due to the increase in commodity and energy prices. But some central bankers see price hikes due to a lack of supply and a sudden jump in demand as temporary. what do you say?

I agree with the central banks view that the current rise in inflation is caused by supply chain disruptions and will reverse as the global economy gradually reopens. However, there is a growing risk that this short-term inflation could spread to the medium term as the entire global economy will bear the brunt of the mismatch between supply and demand. This will prompt central banks to reconsider easy monetary policy.

Public sector institutions continue to rise despite marginal improvement in benchmark indicators, what is fueling this rise and how sustainable is it?

The rise in international energy prices, taking advantage of the PSUB Spot Correction Framework, and reforms such as divestment and remittances raised the PSE outlook, which will help in the long run.

The real estate sector is another sector in a strong position. Is everything positive for the price of this sector at current levels?

The demand for real estate is improving due to the marginal correction in real estate prices and lower interest rates. The registration is improving month by month due to the endless demand from the public for housing. Opening up the economy is expected to increase trade demand in the future. However, the ratings are in the upper range, which will affect performance in the short to medium term.

After a strong rally from last year, metal stocks have seen a correction in the recent past. Iron ore futures rose 10% to 752.5 yuan with January delivery, do you see this as a resumption of the metal stocks bullish trend?

The long-term outlook for the metals sector is positive due to fiscal spending announced worldwide and the reopening of the economy. As the sector is likely to be affected by supply chain issues, commodity prices and delta variables on a near term basis.

After a brief pause in August, stocks of mid- and small-cap companies showed strength. So which of them are your best choices?

Our view of the broad market is positive due to the reforms, the opening up of the economy and the high-quality IPOs. The decline in medium and small companies is an opportunity as there has been a good correction in valuations on the back of earnings gains. However, we must be specific about the sector we invest in due to consolidation and peak valuations in the global market. We love pharmaceuticals, chemicals, automobiles, hospitality, media, ITES, industrial manufacturing and energy.

We are only a few days away from the Q2 seasons, how do you see it launching the next phase of the market rally?

Q2 preview is better than Q1 due to lack of closing in global and domestic markets and rise in demand. The reopening of the economy and the upcoming holiday season will improve the outlook for consumer durables, banking, hospitality and entertainment. Other sectors where reforms have been implemented such as PLI (Performance Linked Incentive), focus on clean energy and new generation companies will also provide better management for the future. Because of the peak ratings, there is a correction in the IT sector before the results are announced. However, you may return once the result is announced. Given the rising cost of raw materials, and the huge gap in supply and demand at the moment, sectors such as cement, automobiles, metals, mining and logistics will have a mixed impact.

First published in money9.com.

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