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While volatility is the inherent trait of equities, understanding the key determinants and triggers can make investing fruitful. In this context, Cafemutual hosted Shridatta Bhandwaldar - Head Equities, Canara Robeco MF at Cafemutual Confluence 2022 (CC 22) who gave us a closer look at equities.
Shridatta believes there are opportunities in terms of corporate and bank balance sheets, formalisation of the economy and changing consumption patterns. However, liquidity, inflation and moderating exports continue to remain cause concern.
Elaborating on the opportunities and headwinds, Shridatta said:
The three key stakeholders
#1 Government - It is the only stakeholder which doesn’t look at ROE or ROC and starts investing aggressively when it has money. However, there is no way of economic growth if tax collections are challenged.
#2 Corporates - Since the last six-seven years, corporates have been talking about reducing cost/borrowings and the deleveraging is now largely complete. When the deleveraging is done corporates tend to invest in business and this is where opportunities lie.
#3 Banking - For any capex/activity to take place in the economy, there should be a banking system. Thus, this is a large pillar of the economy.
In the current scenario, the balance sheets are clean and there is incremental capex. While the first two stakeholders are willing to spend, the third stakeholder is in a position to support that growth.
Resilient household consumption
Household consumption is a two-part story where 70-80 crore people form the bottom pyramid and 20-30 crore people are at the top. With the real estate and markets going up, the cash flows have seemingly improved at the top.
While only one and a half to two crore people pay taxes, they continue to do well. Basis their consumption, housing and auto are the two largest components of consumption. And, these cyclical sectors are coming out of a cycle.
There has been replacement demand in these sectors over the last six-seven years which will ensure a cyclical upturn for the next two to three years. The pace, however, will be a determinant of external challenges.
Also, formalisation of economy is happening. Private sector as a percentage of the GDP has consistently been moving up. You are at a stage where people have started consuming particular services more. Further, they prefer using different footwear for different occasions rather than one. Apparel replacement is also taking place at a faster pace. This is happening at a mass scale and when that happens, the industry gets organised.
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Socio-economic Improvements |
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Unorganized to Organized Theme Catalysts |
Sector Beneficiaries |
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Favourable demographics |
Consumption, insurance and real estate |
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Increasing urbanisation |
Housing, building material, retail and transportation |
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Formalisation of economy |
Financial services, staffing/recruitment and transportation |
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Improving income levels/premiumization |
Healthcare services, branded products and auto |
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Regulatory/government policies (PLI) |
Electric components, textiles, medical devices and white goods |
Headwinds or possible challenges
Typically, liquidity drives trade cycle that in turn drives price cycle/inflation. Since the last year, liquidity is reversing and valuations are correcting globally. There is a growth slowdown across the world including India.
Inflation is yet another headwind. The capital flows will continue to be heterogeneous till inflation issues resolve. Additionally, if exports keep moderating, there will be challenges on currency and domestic interest rates.
Here’s a teaser of Shridatta’s session. You can watch the entire video along with other CC 22 videos at a nominal price of Rs. 499 only. Simply write to us at fouzia@cafemutual.com and get ready to march towards Rs. 100 lakh crore.
