Dalal Street Voice: 2022 budget set to deliver benefits for the housing sector: Satish Ramanathan of JM Financial
The 2022 budget will continue to encourage Atmanirbhar and make investment more attractive, and we expect that measures will be given to the housing sector and it will generate a significant number of jobs, Satish Ramanathan, MD & CIO- Equity, JM Financial Asset Management – said in an interview with Kshitij Anand from Zeebiz.
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Ramanathan has a rich and varied experience of around 3 decades and joined the AMC of Tattva Capital which was his entrepreneurial company. He started his career at TATA Economic Consultancy Services in 1992 and then worked at ICICI Securities, Franklin Templeton AMC and Sundaram AMC.
Q) Omicron, the fear of US Fed tapering is instilling volatility in the markets. Where do you see the markets in the next 12 months or so?
A) We are seeing markets become more volatile than before as inflation risks become a persistent threat. Omicron is definitely a problem, but it is too early to comment on its impact on the Indian economy as a whole.
Our GDP growth has accelerated and we have exceeded pre-COVID levels in terms of economic activity. Other issues are impacting markets, as well as valuations, earnings growth, and money-making IPOs.
Given our valuations and the normalization of earnings growth, we expect 2022 to be a year of consolidation.
Business performance has been robust in Q2FY22, and although there are cost pressures, we expect earnings and earnings growth to remain intact. There is a basic effect on the numbers that we need to be aware of.
Q) The 2022 budget is also in a few months. What are your expectations regarding the Budget? Do you think this will be populist rhetoric that could hurt the government’s already strained budget calculations due to COVID?
A) So far, we haven’t seen budgets lately be extremely populist, and we don’t expect it to be so. Tax collections are increasing due to better coverage and better compliance.
It is true that the fiscal position has been impacted due to COVID, but there is resilience in tax collections and the underlying growth is adequate to cover this.
In addition, with the return of inflation, taxes in nominal terms will increase faster than initially expected. In fact, it is possible to rationalize / reduce GST rates given the strength.
There is one area of concern, however, which is the increase in fertilizer prices due to rising energy costs. This can have an impact on tax calculations.
Q) Which sectors are likely to take center stage in the 2022 budget?
A) In our view, FY22 will be more the same, as the nascent recovery we have seen in the manufacturing sector continues. We are seeing robust exports of engineered products that will support and expect textiles to do well.
The Production Incentive Program (PLI), China +1 and strong domestic demand will force companies to invest in capacity building, reversing a decade-long slowdown.
Thus, we believe that industry, textiles, chemicals and engineering will continue to experience strong growth, while the recovery in consumption will follow.
The budget will continue to encourage Atmanirbhar and make investment more attractive. We expect some blows to be dealt to the housing sector as it generates a significant number of jobs.
Q) The year 2021 will also be an IPO year when many niche or new age companies have been listed. How do you summarize 2021 in terms of primary markets and your outlook for 2022?
A) We think 2021 has been an inflection point for many companies which has been the culmination of many trends and COVID has helped many of those companies. The shift to e-commerce was made necessary by COVID and is expected to continue.
The implementation of the GST has improved the journey times of goods, which has helped companies in the logistics sector. We believe that many new companies will be created and that the IPO pipeline will be strong in the future as well.
We expect 2022 to be similar to 2021 with primary stocks sparking interest and older companies needing to reinvent themselves.
Q) 2021 has been a volatile year but the bulls have managed to stay in control. How do you see 2021? What are the main highlights that stand out from a market, fund or business perspective?
A) We see 2021 as a remarkable year in which India’s resilience has stood out – starting with companies that have managed to operate under the most adverse conditions while generating significant profits, to investors who have increased their savings and have always trusted Indian stocks, directly and through mutual funds, and finally, the country implementing one of the most aggressive and ambitious immunization programs.
Company performance has improved significantly, with many non-essential expenses eliminated. There was some distress at the base which is now receding.
As a fund management company, we are confident in the growth prospects as we have not made real progress for two years and we were previously on a declining growth path.
Q) FIIs remain mostly net sellers, especially when it comes to the liquidity segment of Indian stock markets. How does the IFI view India in light of a faster-than-expected US Fed cut?
A) IFIs have been an important part of the equity market flow equation, but their impact is diminishing. A strong direct participation in the capital as well as significant flows in the mutual funds amortize the outflows of FII / REIT.
There is a general consensus among REIT participants that China offers more value than India, which has outperformed in the past 12 months.
Therefore, we are seeing sales now. In addition, REITs also change their portfolio and invest in IPOs by selling their existing holdings.
We believe that REITs will continue to invest in India’s growth and are not affected by lower flows in 2021.
Q) Which sectors are likely to take center stage in 2022?
A) We believe that there would be a gradual recovery in manufacturing and exports and therefore we are positive on these sectors. Other sectors such as insurance, automobiles and chemicals are also promising.
Q) A particular theme that has remained in the spotlight in 2021 and may well remain relevant and in demand in 2022 as well and why?
A) Many industries show long term trends and the recovery in chemical industry, textile industry and engineering / automotive should be seen as multi-year growth opportunities.
Rising domestic demand and exports as well as import substitution will be the main reasons for these sectors.
Q) What were your main market lessons for 2021 that investors should take away?
A) Our main learning from these volatile markets is that investing in high quality companies and good visionary management really pays off. Successful businesses are often simple businesses that work very well in a classic style.
There are very few companies that can consistently deliver on this promise and we need to pick these good companies and stay invested.
While it may seem simple, disciplining yourself to own a few good quality businesses is the key to a successful investment.
Q) What are the main risks investors face in 2022?
A) There are still great geopolitical risks surrounding the US-China relationship and its impact on world trade. Apart from that, there is the issue of rising energy prices which can cause inflationary pressures.
The main risks are COVID and its variants. Central banks have been pro-growth and tolerated inflation longer than previously thought.
If the current moderate interest rates are reversed and liquidity is also reduced, the market may become volatile.
Disclaimer: The views / suggestions / advice expressed here in this article are solely by investment experts. Zee Business suggests that its readers consult their investment advisers before making any financial decisions.