Sun. Nov 27th, 2022

Equity markets have taken a beating this year, due to geopolitical tensions, rising interest rates globally and continued selling by foreign institutional investors (FIIs). The BSE Sensex is down nearly 15 percent from its peak last October. However, the worst could be over for the markets, say analysts at Emkay Investment Managers.

Sachin Shah, a fund manager at Emkay Investment Managers, noted that metal prices, which had peaked, have now cooled, with steel and non-ferrous metal prices falling 15-20 percent from to its average of the last twelve months. . With farm prices also cooling, the worst of inflation may be behind us, he thought.

FIIs sold a whopping amount of Rs 2.56 lakh crore between 1st April 2021 and 30th June 2022. But, this intense selling may also be at its last mile, he believes.

“From January 2019 to almost March 31, 2021, FIIs invested Rs 3.3 lakh crore. Now they have already sold Rs 2.5 lakh crore plus. The big froth that we would have seen buy-wise seems to be completely out of the market. From that perspective, the big challenge we’ve seen from the FII sale, the worst seems to be behind us, probably now the last stage of the sale could be happening. In recent trading sessions, the intensity of selling has already subsided,” Shah said.

At the same time, corporate profits are expected to improve and banks are also now in a much better position having cleaned up their balance sheets, Emkay notes.

“Covid played a catalytic role in which companies took a strict discipline in managing their balance sheets, whether it was focusing on cash flows by adjusting working capital or paying down some of the high-cost debt… Banks too they have reinforced their capital very strongly. for the next stage of growth,” Shah said.

Emkay analysts also believe that broader market valuations were now below their five- and ten-year averages, offering reassurance.

“Three months ago there was this question of whether we should invest or should we wait. Now the sentiment is rapidly changing to yes, we should invest. So the mood is changing from neutral to positive right now. I am extremely positive in terms of how things will develop in the next 6-9 months. I think people who invest now will not regret it,” said Vikaas Sachdeva, CEO of Emkay Investment Managers.

The portfolio manager is optimistic that the manufacturing sector will outperform the broader markets. The Union government has announced over the last year several production-linked incentives (PLI) for various sectors. It aims to provide incentives worth nearly Rs 2.4 lakh crore over the next 5 years. Emkay Investment Managers believes that the PLI scheme has the potential to add almost 4 per cent of GDP per year in terms of incremental annual income. He pointed out that the registration of manufacturing companies has shot up to the highest of the last 7 years.

Supplies in China have been interrupted due to the pandemic. Also, the depreciation of the rupee is making India more competitive, the analysts added.

“We expect the manufacturing sector to become the main investment theme. In the medium to long term, we expect greater exposure from the funds’ investment allocation. After a long hiatus, manufacturing companies are likely to be the wealth creators, the leaders of the next market rally,” Sachdeva said.

Read More: Equity market outlook turning positive, manufacturing sector to outperform: Experts