'Dec'21 Nifty target of 16,500; still a lot of opportunity in large-caps'

Piyush Garg, executive vice-president & CIO PMS, ICICI Securities shares his views on the road ahead for the markets and the investing strategies one should adopt

As India gradually unlocks after the second wave of Covid, PIYUSH GARG, executive vice-president & CIO PMS, ICICI Securities, tells Puneet Wadhwa in an interview that this year, he expects the pent up demand for goods to be a bit lower than in 2020. Edited excerpts:

What all positives and negatives are the markets factoring in at the current levels?

Markets have largely factored the downward revision to economic growth in the first quarter of the current fiscal (Q1FY22) due to the second wave of Covid. Equity markets are looking forward to a faster pace of vaccination drive in India in the July – September quarter. Gross domestic product (GDP) growth in FY21 has come better-than-expected on the back of higher recovery in the last two quarters. Domestic companies’ sales growth has led to the build-up in optimism along with recovery seen in global markets. We have a target of 16,500 on Nifty by December 2021.

Takeaways from the March 2021 quarter numbers and expectations from fiscal 2021-22 (FY22)?

Banks have driven the earnings in the March 2021 quarter. Lower–than–expected slippages have boosted the confidence. The shift from informal to formal in most sectors of the economy, coupled with the market share gains by the sectoral leaders is the key highlight, which is overshadowing the margin pressure. There will be some impact on the June 2021 quarter numbers because of the second Covid wave; however, the rise in earnings of the commodity producers offsets the same to a large extent. Market is factoring in the deterioration in June 2021 numbers of India Inc and is looking ahead for higher capex from government, revival of capex from large corporates, some fiscal stimulus on the sectors adversely affected by the second Covid wave.

What are your overweight and underweight sectors?

BFSI space is likely to outperform going ahead, as the restructuring from the retail segment is coming at sub-1 per cent, which is encouraging along with deleveraging of the metal sector. There will be some pent up demand for consumer discretionary, but not to the extent we saw last year. Tailwind of China+1 strategy for specialty chemicals, infra push and front loading of capital expenditure from government are the key investment themes, going forward. Capital goods production has reached the highest levels of the last one year despite the lower mobility and lower fuel consumption lately.

What’s your view on banks?

One should increase exposure in the banking sector. They seem to be ready to absorb any future delinquency on account of high provisioning. The GNPA of the banking segment has remained lower than market expectation. In fact, it has been lower than in 2018 when the global slowdown was seen due to the US-China trade war. The credit growth of the banking system has been around 5-6 per cent for the last 2 years. As the economy recovers and the capex cycle revives, credit growth in the banking system should increase towards 12-13 per cent (closer to the nominal GDP growth rate) in the second half of the fiscal year, which should augur well for the banking sector going forward.

How badly has the consumption been hit in the second wave? Has India Inc started voicing their concern when you talk to them regarding demand from rural and urban India?

Second wave of Covid definitely had an adverse effect on consumer discretionary and retail outlets. The impact on rural areas has also slowdown the pace of growth as major demand comes from the rural segment. However, the increasing pace of vaccination would bring the momentum back in this space. The declining infections have already increased the optimism and the population directly affected by the second Covid wave is still very small as compared to the overall population. Last year when the economy opened after the lockdown, pent up demand got released that spurred consumption in India. This year, we expect the pent up demand to be a bit lower.

Do you expect increased participation from retail investors going ahead?

There are hardly any attractive investment options available for savers at present. The bank deposit rate has been below the inflation rate for over a year and this has likely led to higher participation from the retail segment in equity markets. Coupled with the fact that markets have given stellar returns, we expect the retail participation to continue. Usually the retail participation is more in mid-, small-cap universe; however we believe there is still a lot of opportunity available in large-caps. If one focuses on the segments where market share is gained in the current tough scenario of higher commodity inflation, return will be better.