As confidence improves, broader markets will do better: Sunil Singhania

Sunil Singhania, Founder, Abakkus Asset Manager
With the markets near an all-time high despite uncertainty surrounding the US poll outcome and fresh lockdowns across major cities across the globe, SUNIL SINGHANIA, founder, Abakkus Asset Manager, tells Puneet Wadhwa that back home, the September 2020 quarter results may comprehensively beat expectations and that may result in big earnings upgrades. Edited excerpts:

How are you viewing the developments surrounding the US presidential polls?

The US presidential election always leads to near-term volatility. But, irrespective of the outcome, the markets have remained positive for three months after the election. This time, investors were extra cautious in the run-up to the election. Hence, our view remains that the markets will rally after the elections in the near-term irrespective of who wins — unless the results become messy and there is litigation. India will also participate in the global rally after the US election. The only thing to watch out for is a bigger surge of Covid-19 cases and the re-lockdown fear.

Do you see the markets sustain at these levels?

We are positive on the markets. The uptick in the global economy has been better than expected. Even in India, slowly the opening up is gaining pace and all economic indicators are now trending positive. Corporate results for the September 2020 quarter have, so far, been exceedingly good — and it’s been across sectors. This should be one of the quarters sees results comprehensively beat expectations and after a long time, we may see big earnings upgrades.

The global scenario is also optimistic except for the resurgence of Covid-19 cases in Europe and the US and the US presidential election. However, our view is that investors globally have been very cautious in the run-up to the election, and therefore, the markets should see a strong move up after that event.

Can the next Samvat belong to the mid- and small-cap segments as the economic recovery gathers steam?

We remain optimistic given the improvement in the economy and corporate earnings. There will be volatility as the Covid-19 issue will keep sporadically resurfacing. However, there is a big probability of a vaccine being available sometime over the next few months. As confidence improves, the broader markets will do better. Investor interest has already been seen in the mid- and small-caps, and this should only increase over the next year. Despite Covid-19-related challenges and scare, Diwali in 2020 is coming with a near all-time high. We expect the momentum to continue in the next year as well. 

How comfortable are you with the market valuation at this stage?

The markets are trading at decent valuations — around 19x one-year forward. But, this has to be seen in the light of record low interest rates and thus it is logical for the price-to-earnings (P/E) ratios to be slightly higher than the past 10-year average. Also, the results for the September 2020 quarter are much better than expectations, which shall lead to earnings upgrades. Another thing: We will be moving to favourable base quarters for March and June in 2021 as these were the quarters impacted the most by Covid-19 in 2020. Hence, earnings for March 2021 and June 2021 quarters will see massive year-on-year growth.

Has picking investment-worthy stocks become even more difficult now?

While our core philosophy centres around return on equity, growth, and multiples, we have been aggressive in adopting new-age and newer businesses, particularly on the disruptive, digital, and technology fields. This has worked well for us and helped us massively outperform the markets in both our funds. Rigidity and stubbornness don’t work in the markets and that’s truer in this age of disruption.

What is the road ahead for foreign flows to emerging markets (EMs) and India, in particular?

The dollar had been weakening over the past few months. It strengthened a bit in the run-up to the US polls as investors preferred to be cautious and risk-averse. Once the election fever subsides, the dollar will again start to weaken and that shall see capital move into commodities and EMs. India has been witnessing good interest in both FDI and FPI flows and this should only increase.

Your overweight and underweight sectors…

We continue to be positive on select information technology (IT) names, as they should continue to benefit from high digital spending globally. Pharma should also do well as the Covid-19 related demand should continue for some time. Banks /financials look good and can catch up. Metals, too, should benefit from the global bounce in commodity prices. We are specifically enthused by select digital plays in India, as this is a theme that is still nascent and has a long road ahead of high growth. Consumption will be a mixed bag.

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