Markets to lay down long-term base for returns, says Vaibhav Sanghavi

The focus would increase on FY21 earnings which can grow by about 15 per cent, according to Vaibhav Sanghavi

As the markets head into 2020 on a cautious note in the backdrop on slipping growth rates, VAIBHAV SANGHAVI, co-chief executive officer, Avendus Capital Public Markets Alternate Strategies, tells Puneet Wadhwa that the focus would increase on FY21 earnings, which he thinks can grow by about 15 per cent. Edited excerpts:
 
What is your outlook for 2020?
 
The markets are likely to lay down a long-term base for return potential, continuing from 2019. I am optimistic for 2020 and beyond. We are in an environment where interest rates are low and likely to stay low for longer, liquidity in the system is ample and a government which is eager to support growth. This, along with potential recovery in global growth and prospects of a US-China trade deal, will continue to offer tailwind to the markets.

 

With respect to domestic growth, barring a quarter, the growth seems to have bottomed out. Aided by corporation tax cuts and potential risk on the environment globally, the frontline indices may do well. For mid- and small-caps, we will wait for broader economic growth to kick-start. That said, valuations do provide relative comfort.
 
What has been your strategy over the past few months?
 
Post July, we were relatively highly hedged. However, after the corporation tax cut announcement and other measures to revive the economy, hedges were reduced while going relative long. This strategy holds until now. The upcoming Budget should provide a further boost to the economy and markets. The markets would be more focussed on earnings growth in FY21, which can grow by about 15 per cent.

 
By when do you see growth rates improving in India?
 
Over the last 18 months, real interest rates have been high globally. Coupled with negative liquidity, it led to weaker investment and consumer demand. However, both these aspects have decisively changed. The measures taken to improve business confidence are likely to show effect within the next two quarters. Hence, growth is close to bottoming out. We believe that autos and infrastructure can be looked into as contra plays.
 
Is the financial sector completely out of the woods? What about realty and telecom?
 
Non-banking financial companies (NBFCs) are relatively out of the woods. We are long-term positive on private banks, while public sector banks (PSBs) will be more of a tactical play. On realty and telecom, both government and industry are playing a very constructive role. They were under stress and adequate steps have been taken to revive and set them on the path of growth.

 
Are PSUs good bets?
 
It doesn’t matter whether stake sales happen in FY20 itself or get spilt over in early FY21. What is extremely positive is that strategic disinvestment is a win-win for all stakeholders. It helps the government get good value for the asset while addressing the fiscal deficit issue and enables higher investment from the private sector. There is deep value in PSU stocks, which can be unlocked via the strategic investment route.
 
What more policy response do you expect from government?
 
The government has done what they had to do for this financial year, and more steps are likely in Budget. Of course, there is some pressure on the fiscal side, but at this juncture when we look to revive growth, slippage in the shorter term is well accepted. So far, the government has been consistent in its approach to focus on sorting the supply side to keep down the long-term inflation under control. The government now needs to balance the measures to push the demand side as well.

 
How are foreign investors looking at these developments?
 
The views of foreign investors are mixed. Some of this is because of the changes in taxation and other regulatory requirements. While the fundamentals of the economy for the long term are good, we have to make the access easy to be competitive vis-a-vis other economies, and see to that regulatory reporting is harmonious and not onerous. Foreign investors remain positive on the steps taken by the government to support growth.
 
Your views on global markets?
 
­­­­­Global growth forecasts are starting to see some upgrades. We do expect growth to pick up, aided by a strong US and a recovery in Europe, and a stable China. This could also see some correction to the dollar, which can have a positive impact on the risk assets like commodities, and emerging markets. There will be a risk-positive environment in 2020.