5 Strategies on Share Market by Vikas Khemani

Today, all we see are headline numbers. The Sensex is hitting 60k while investors are making 4x – 8x money. In the backdrop of such a landscape it is important to understand the factors that are fuelling the current rally and the triggers for market performance going forward.

Guest: Vikas Khemani, Founder Carnelian Asset Advisors Pvt Ltd.

1. What are the factors driving the markets up these days?

While liquidity is one major reason, there are several other factors at play:

a) The pandemic offered strong triggers to the Indian economy, in terms of acceleration of growth. Before the pandemic, we faced major setbacks every 4-5 years. But, those strenuous years were also building blocks and, right before the pandemic, the groundwork had already been laid for India to grow exponentially. After the pandemic, we received two big triggers which were not really prevalent previously. The IT services sector witnessed super growth, creating an array of job opportunities.

We currently export 165 bn dollars’ worth of IT services and this is set to grow to 300 bn dollars over the next 5 years. Similarly, the manufacturing sector is also a very big focus post the pandemic. Our government wants to reduce import dependence and propel AtmaNirbhar Bharat so this is a huge opportunity. Further, countries are moving away from manufacturing in China and India is a big beneficiary of this shift.

b) The Indian banking sector is now more consolidated and looking to grow and the real estate segment is also showing significant expansion. The Government is spending massively on infrastructure, across ports, railways, and urban infra, further propelling growth. There is sustainable growth in every sector, except travel and tourism, and this will pick up as unlock proceeds.

c) India’s mind-set and structure has changed, along with the growth drivers. Positive trends are likely to stay for the next 5-7 years. We are looking at a 5-7-tn-dollar market cap over the next 5-7 years. 

d)The future of Indian equity and economic recovery looks very bright given strong structural foundations. There is great confidence in corporate returns and earning recovery across broad based industries. The overarching positive outlook is driving markets and this is one of the best periods for the Indian economy.

2. What are the major triggers for the market, going ahead? If we want to start investing today, what should we watch out for and which are the best sectors?

For long-term investors, my advice is to keep investing your surplus. India will deliver and give strong returns. People have been waiting for corrections but it is a futile exercise. Maintain conviction over the longer term and only worry about market triggers if you are a short term investor. Keep investing in high quality companies and industries.

I am positive on most sectors and have been especially bullish on the tech and manufacturing sectors over the last one year. We are very positive on these sectors for the next 5-10 years. Banking is likely to do well over the next 18 months and, with salaries rising, consumer durables, consumer discretion, and real estate sectors also show great promise. 

3. There are a host of external factors at play. How are these affecting the market?

Considering the volatility in China, we have limited market links with the country as China is a largely closed economy. As a global lender, China poses low risk. In fact, the chaos in China will only help India as we are a good alternative base for manufacturing companies. Manufacturing shifts are decadal, so India will benefit greatly if this comes about.

Additionally, India is now less dependent on foreign capital. We are now a current account surplus country and with the growth in IT and manufacturing, this surplus is only set to rise. We are much better placed, than ever before, to limit the impact of foreign events originating from global economies like China or the US.

4. There are several upcoming IPOs. Should retail investors go the IPO route and which IPOs should we choose?

Please note that 80-90% of the present IPOs are expected to be below IPO price in the next six months as there is a lot of froth. Over subscription is hiking prices and the IPO frenzy is so high that the prices are too fine to offer any margin of safety. The companies are exceptionally good but I will advise investors to be very safe and careful. My caution stems from the pricing and not the quality. IPOs are a great way to access strong companies but you can gain better entry at later stages, when the frenzy goes down and prices settle.

Check - List of Upcoming IPOs in 2021

5. What is your advice to viewers on how to approach the market at this juncture and where do you expect the market to move in next year?

I am very bullish on the market in the medium to long term. In the shorter term, it is very easy to get carried away and rely on investment tricks and tips. This is the time to focus on risks, instead of returns as return traps are very dangerous and you might end up losing money. Invest only after doing strong research and invest only in good companies. In bull markets, the quality of the portfolio deteriorates, so think about whether you want to make more money or quick money. It is better to be patient and work towards making more money.

Take long-term structural bets and focus on the quality. When going for growth investment, study stocks deeply and figure out the possibilities. Investing is all about safety and returns. It is a detailed science and requires detailed study of the industry and the companies you wish to invest in. Going ahead, I am extremely bullish on India. With the mind-set change, India is poised to grow. The political leadership is pushing development and growth. Take advantage of the success story through long term investments and keep studying the inherent factors. Stay invested and stay safe.