Markets not richly valued, says Ridham Desai, MD of Morgan Stanley

Ridham Desai is bullish on corporate earnings in the year 2022.

Ridham Desai shared his thoughts on the stock market outlook for 2022 with ET Now and also mentioned his favourite sectors going ahead. He has an optimistic view of the markets. Morgan Stanley has a target of 70,000 levels for Sensex in the year 2022. According to its report, investors can expect to earn a decent 16% yield from here on for Sensex. Ridham Desai is bullish on corporate earnings growth. The corporate profits to GDP ratio is hovering at an all-time low since 2019 which is expected to normalize in the year. The government has been supporting corporate growth through various policies and by cutting tax rates in the past year and has been trying to get back the investment cycle on track, which is why he foresees significant earnings growth.

While there has been a lot of buzz in the market regarding the high prices, interestingly, he believes that the markets are not actually trading at rich valuations. The current earnings are depressed compared to past times. The Nifty 10-year CAGR earnings are quite low, which is bound to normalize assuming the companies deliver these earnings.

He also expects some volatility to kick in in the coming year due to Federal Reserve’s policies, rate hikes, state elections, RBI policies, etc. And hence he has stressed more on stock picking over macro variables. He is more confident on largecap stocks over small and midcap stocks as those are expected to be more volatile.

Talking about the sectors, he feels the financial, industrial and consumer sectors are expected to do better. He also talked about two interesting sectors: Defence and air travel. He feels the country’s focus on indigenous technology spending will be beneficial for defence companies. Also, the increasing affordability of Indian consumers will push the volumes for air travel once the covid restrictions are lifted.