Nimesh Chandan advises having a long-term emphasis on investing and looking at the years 2023 and 2024 in order to make a better choice of businesses or portfolios.
According to Nimesh Chandan, Head, Investments, Equities, Canara Robeco Mutual Fund, "I am personally extremely enthusiastic about inflation coming back, which implies the commodities sector over the next two to three years might see a big up move."
What is your hypothesis on the way things markets have changed between March and now?
There has been a significant shift in attitude among investors over the previous six to seven months as they went from panic and fear to hope and confidence. Many participants believe that the markets have moved irrationally or too quickly, but I believe that the market has chosen a certain path as fresh information and developments have emerged since March. First, the security of the portfolios attracted a lot of attention. We noticed that industries like consumer goods, pharmaceuticals, healthcare, and to some extent IT — industries whose growth could be relied upon — were the ones that gained attention. Then, as fiscal stimulus and monetary stimulus announcements spread throughout the world, we moved to industries that benefited from these boosts, such as
Still, certain foreign sectors benefitted from it, and as the unlocking process began, we observed domestic industries participating with some comfort. Largecap stocks always emerge from crises first. The largecaps had a bounce initially, then starting in July, midcaps and smallcaps also experienced a rise. As a result, reasonable chronological shifts have been observed. Although the event moved a little too quickly, it did so logically, and now there is widespread market participation.
Even the formerly lagging sector of banking and finance has begun to engage in market activity. From this point, it will be more about stock selection inside a sector than allocation to one, therefore considering bottom-up stock choosing rather than merely top-down might be advantageous. Some topics will continue to be popular, such as rural India, which has prospered in recent years thanks to good monsoons and government initiatives.
Additionally, themes that aid in export promotion or import substitution are anticipated to continue with the government's drive for Atmanirbhar Bharat. I am personally pretty enthusiastic on inflation returning, which means the commodities sector may have a big up move over the course of the next two to three years. From here, it's going to be noisy. There will be many events that will receive a lot of attention, but they shouldn't have a significant impact on the market trend going forward.
The mid and small cap universe was bombed out between September 2017 and early 2018. Where are they right now in valuations?
It is quite impossible to generalise about the extremely varied range of industries or firms that these categories cover, therefore you must be very picky about the businesses you bet on when investing in midcaps and small caps. Despite the Sebi categorization, which includes 150 midcaps and the remaining companies below, small cap is now a larger universe. Although it is challenging to generalise these categories, a theme is there. Companies that dominate their industries in midcaps and small caps are now trading at or above their 2017 highs. These businesses may rank among the top three in their industry, be leaders in a specialty or have a strong brand franchise. It may also be an emerging industry with strong growth.
Do you expect earnings trajectory to start improving in the next two to three years?
Without Covid, India Inc.'s profits trajectory would already be showing a healthy growth. Lockdowns caused some minor disruptions throughout the previous quarter. The government had implemented several tax perks and industry-specific incentives during some of March and later in Q1. We performed flawlessly in September and October of last year, but we had to deal with the Covid problem before we could reap the rewards in a better profit trajectory. I think we will emerge from it and return to a better growth trajectory by the following year.
We should expect a higher growth rate than what we have witnessed over the last three years in the coming two to three years. The value has a role in some of it. A very smooth recovery in FY22 has already been factored into the majority of estimates. Now, one must have a long-term focus on investing and look at 2023 and 2024 for a better selection of businesses or portfolios.
With the US elections, the second wave of the European corona, and additional lockdowns, it is expected to be a noisy six months. If during this noisy phase, when people reset their expectations, there may be a chance for a correction.
If investors have a longer time horizon at these levels, they will need to benefit from stock selection, and there are opportunities in midcap themes.
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