Why Emkay Global Advises India’s Equity Investors To Stay Invested

Equity investors should stay put even as India’s benchmarks slipped off their peaks touched earlier this month, according to Emkay Global’s Krishna Kumar Karwa.

Investors can rotate their allocations between sectors but must remain invested to see higher gains, the managing director at the research firm told BloombergQuint’s Niraj Shah in an interview. “At least for the next two-three years, the Indian markets are clearly on the run.”

Karwa agreed that investors are currently sitting on huge gains and hence have the urge to book profits, especially amid the face of deteriorating macroeconomic indicators. But taking small corrections in their stride might lead to larger gains in coming years, led by an already in-motion capex cycle, better corporate earnings and the government’s focus on the private sector, he said.

The Nifty 50 Index has gained more than 20% in the last 12 months, nearly 30% in the last six months and 5% so far in 2021.

Investors, according to Karwa, should look at individual stocks that offer decent valuation and growth visibility. A stock that has the potential to grow but is overvalued will not earn much for its investors, but without visibility, a well-valued stock will also not deliver returns, he said.

Here’s what Karwa had to say about specific sectors:

Bank And NBFCs

• Growth is not just limited to the top two-three banks.
• There is value and opportunity for growth and valuations are also favourable for the second-tier banks.
• The graph is very well compounded from the next three-year perspective.

Automobile

• Stock-specific opportunities are available, based on the turnaround.
• Some businesses have great visibility over the next two-three years; also a lot of focus on capital allocation in some companies.

Real Estate

• Reasonable valuations.
• Years of consolidation has happened and demand is picking up, therefore good visibility of growth.
• The whole chain is poised for a very good uptake for the next three-four years.

Capital Goods

• Bearings, power generation or pipes companies.
• Digitisation and automation companies.

PSUs

• “Successful divestment will give more leg to the PSU rally that we are witnessing right now.”
• No doubt about the value of these units but sustainability depends on execution.
• If there is 100% divestment, some of these PSUs may turn out to be great wealth creators.
• However, if there is only partial divestment with major control still remaining with the government, the results may not be quite as expected.
• Some caution should be exercised before investing in PSUs.

Information Technology

• Great visibility of growth due to digitisation and cloud migration.
• Good returns from the next three-four years perspective, despite slightly elevated valuations.

Telecom

• Price hike will eventually come into this three-player market.
• Capital inflow is no longer an issue. Migration to 4G is favourable.
• Returns are improving due to natural monopoly.
• From a two-year perspective, both telecom operators with great resources will perform well and generate good returns as they are consistently being able to improve their output.

Watch the full interview here: