‘Correlation of Indian mkts with global peers will be high’

The markets have taken all the bad news regarding the surge in Covid-19 cases in India, economic stress, and sub-par corporate earnings in their stride. RAHUL SINGH, chief investment officer (CIO) for equities at Tata Asset Management, tells Puneet Wadhwa that he remains overweight on consumer, telecom, energy, and private banks. Edited excerpts: How worried are you given the rapid rise in the equity markets since March 2020 lows in the absence of support from earnings growth?

India’s valuation premium to other emerging markets (EMS), which had declined to 20 per cent in March 2020, is now at an average level of 35–40 per cent. So, there is less room for outperformance. Correlation of

Indian markets with global peers will be high from here on. Market trajectory will also depend on the pace of economic recovery. Some states are entering relockdown that can impact the overall growth numbers again and stall recovery. A combination of these factors will drive the markets from here on apart from global liquidity events. From a longterm perspective, there is opportunity for India from the emerging supply chain

and geopolitical dynamics. Good monsoon, along with strong demand commentary from the agri-dependent sectors (agrochemicals and tractors), can drive growth.

How should investors approach their equity allocation now?

Investors need to focus on the diversified large, mid or multi-cap segments as the valuation discount of mid/small-cap is adequate at this stage. In addition, certain pockets of value have potential for better valuation, especially if the government’s move towards privatisation picks up. Given that the broad market valuation seems to be having relatively less room for a significant appreciation and the short-term news flow could remain volatile, balanced advantage funds are a good option and have weathered the storm very well in the past four–five months. As far as diversified equity funds are concerned, a staggered approach is advisable.

Your estimates for corporate earnings in the April–june 2020 quarter and financial year 2020-21?

The consensus Nifty earnings per share estimate for FY22 has been 15 per cent so far, with the risk of 5 per cent cut, given the lack of fiscal stimulus and staggered lockdown removal. The demand across industries is back at 70-90 per cent of preCovid-19 levels but the real picture will emerge in August–september after pentup demand and restocking.