Stocks

‘There’s better value in large-caps’

| Updated on: Jul 27, 2017
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Despite Nifty 50 hitting the five-figure mark, there is scope for it to double on the outcome of the next general elections, according to Jyotivardhan Jaipuria, Founder & MD at Veda Investment Managers Pvt Ltd. The ex-Head of India Equity Research and strategist at Bank of America Merrill Lynch is bullish on earnings growth. Excerpts:

What should investors do with Nifty hitting 10,000?

Indian equity markets do not look cheap. There is a possibility of a correction — both price and time correction. One should invest only with a three-five-year view.

How long will equity do better than other asset classes?

There are lot of structural changes happening in the real estate market, such as RERA, demonetisation, etc. Hence, equity will do better than real estate in the next 5-10 years.

Do you see tNifty doubling by the next general elections’ outcome?

It can, because the earnings cycle has not yet started or kicked in. Over the next five years, earnings can double. So the returns will be largely led by earnings growth and not the PE re-rating that drove returns over the past few years. I expect 12-15 per cent compounded returns (market), which will be better than all other asset classes.

Where do you find value in this market?

There is better value in large-caps if one takes a medium-term view. But over three-five years, as earnings recovery happens, mid-caps will always do better than large-caps because of higher earnings growth.

In terms of sectors, I see value in economy-led sectors which have not participated in the earnings recovery. The government is spending a lot of money. Operating and financial leverage will be a big theme over the next few years.

When will earnings recovery happen?

The first half of this fiscal is not going to be the phase of earnings recovery. But the December quarter could start seeing better numbers year-on-year (because of demonetisation) and sequentially (GST impact).

Which sectors will drive earnings growth?

Domestic plays will drive earnings growth. Within consumption it will be companies, which have been catering to rural India, such as two-wheelers and agro-chemcials, as things were not good for the last two years. Within infrastructure, things will pick up a lot in sectors such as roads, defence and railways. I also like companies related to affordable housing such as cement and contractors.

Do you see continuation of the trend of improving interest coverage ratio of BSE 500 companies?

As long as companies don’t start capex and earnings start to grow, interest coverage ratio will keep improving. I think, it will continue over the next two years.

What is your comment on the recent IPO performances?

I am not worried about many IPOs which have come recently as many are good quality companies. But as the IPOs are priced high, one has to be very selective.

Published on January 11, 2018

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