Worst phase of selling is over for Indian equities: Devarsh Vakil, HDFC Sec

Systematic investment plans (SIPs) are a great tool to build long-term wealth and investors should stick to them, says Vakil.

Foreign investors suffering large drawdowns in their emerging markets is the factor that has led to sharp selling in Indian equities as well, according to DEVARSH VAKIL, deputy head of retail research at HDFC Securities. In an interview with Harshita Singh, Vakil, however, says that in the long term, he expects large portfolio flows to enter the domestic markets as endowments and pension funds rebalance their portfolios. Edited excerpts:

FII selling has been relentless. Is this irreversible now? What is the likely trend ahead?

Foreign investors have suffered large draw-downs in their emerging markets and other Asian exposures due to sharp decline in markets like China and Russia. It is natural that they will experience redemption and that has led to sharp selling of foreign investors in India as well. We expect foreign funds to keep selling, albeit at a slower pace in the short term. Over the longer term, foreign investors will reenter Indian markets as large endowments and pension funds will rebalance their portfolios in favour of stocks compared to bonds. India will get its fair share and more in the second half of 2022.

With some respite in the last week, is the worst over for markets?

The worst phase of selling is over for Indian equities. Nifty is likely to consolidate between 15,500 to 17,500 range in the medium-term. We have been bullish on select Information Technology (IT) and Pharmaceutical plays. After the recent correction, we have been recommending investors to start accumulating large and established players in the financial space.

Can you elaborate on the strategy you have been recommending to retail investors?

Retail investors should prepare a full-proof asset allocation plan according to their risk appetite and stick to it. If they have expertise or access to right advice, they should exploit the opportunities offered due to volatility in asset prices. Systematic investment plans (SIPs) are a great tool to build long-term wealth. Investors should stick to them and increase the investment size when indices experience large drawdowns. They should reduce exposure to all those commodity chemical plays who use crude derivatives as a direct input. 

How do you see the Reserve Bank of India (RBI) respond to the developments in April monetary policy review?

Higher energy prices are bane to countries like India, which are heavily dependent on imports. Geo-political uncertainties have led to sharp shoot up in energy costs and that is leading to imported inflation into India. The rise in crude oil prices are due to supply side disruptions, and monetary policy is not a relevant tool to address that. But, the RBI will have to raise rates in the April policy meeting to moderate the inflation expectations.

What is your corporate earnings growth expectation for the March quarter and FY23 in view of the current headwinds?

We expect the Nifty to register 20 per cent growth in FY23 on top of 36 per cent growth seen in FY22. 

China is seeing a resurgence in Covid-19 numbers with new lockdowns. What is your assessment of the risk and likely impact this could have on the markets?

An average Indian is not concerned about rising Covid-19 cases and it has not impacted Indian markets off late. We have been favouring the ‘unlock theme’ from the peak of the second Covid wave in May/June 2021. Tourism & Leisure travel, cinema exhibition, restaurants businesses are booming, and we continue to have a positive view on this sector.