So, are they looking beyond the possibility of another stringent lockdown?
They are reasonably confident that there will not be any more country-wide lockdowns, and henceforth, lockdowns will be localised and restricted to severely impacted states or districts. Financial year 2021-22 (FY22) should see robust growth in the domestic economy, and current stock prices broadly reflect this expectation.
Retail investors have been actively participating in the recent rally. What has been your experience in the broking business segment at Emkay over the past few months?
There has been a massive increase in retail participation in the last three months as can be seen in the number of demat accounts opened. The share of retail participation in the cash market has also surged to almost 75 per cent now from 55 per cent during normal times. This retail surge is more from the day traders. Once the economy fully reopens, some of these enhanced volumes will subside; however, in the medium-term, we are very optimistic that retail volumes will continue to trend upwards. Extremely competitive brokerage structures and technology-driven brokerage platforms will continue to attract new tech-savvy traders.
How much dent do you expect in the overall trading volumes at the exchanges and in your broking business once the new margin norms are implemented?
Improved risk management measures introduced by the regulators are always good for the overall ecosystem. In the initial few months, volumes might take a beating — but to what extent, only time will tell. At the end of the day, do remember that if there is money to be made, participants will come in droves, and such irritants will be forgotten sooner than later. For whatever reasons, if there is a sharp correction, then certainly these revised margin norms will get their fair share of the blame. Apart from individual investors who are impacted, even the portfolio management services (PMS) and alternate investment funds (AIF) segments are presently at a distinct disadvantage on efficient execution and deployment of surplus liquid funds.
Where do you see opportunities in the current market?
Technology, Telecom, information technology (IT), Pharma, and Speciality Chemicals are some of the sectors, which we believe, despite the recent run up, still offer scope for further long-term opportunities. Non- lenders like asset management companies (AMCs), wealth managers, and insurance companies should also do well going forward. For banks and non-bank finance companies (NBFCs) — the true picture and the extent of the damage will be known only in the third / fourth quarter of FY21. Till then, they may continue to underperform. On the domestic consumption front, there are a few stocks which offer value — otherwise most stocks are expensive. Cement stocks have delivered good performance over the last few quarters and offer good capital appreciation opportunities.
Your estimates for earnings growth/recovery?
It would be prudent to ignore FY21 estimates. It is extremely difficult to assess the extent of damage to demand as well as the speed of recovery. Investors would do well if they focus on balance-sheet investing rather than on profit & loss statement (P&L) –based investing. Sector leaders with robust balance-sheets should eventually gain, as the unorganised players in those sectors shrink and lose market share. Having said that, we believe Nifty Earnings will see a CAGR of 11 per cent over FY20-22, with FY22 showing over 25 per cent growth over FY21.
What's the road ahead for flows into the equity segment over the next few months?
Despite the poor returns that equity investors have earned over the last three – five years, they have faith in the asset class to deliver superior post-tax returns over a longer time frame. Equities will continue to form an important asset class for Indian savers, and we will continue to see steady inflows into the equity segment. There can be more robust inflows when the economy, and therefore, the stock markets, are booming. Counterintuitively, it should be the other way round — you invest in a weak market or a poorly faring economy, to reap the gains when the market rebounds, or the economy bounces back. In the current falling interest-rate environment, equity will continue to attract investors. REITs and INVITs could become an important asset class in the coming years.