Betting On Exports

Any democratic government has to act as per the needs and aspirations dictated by its demographics and in case of India growth is one thing that dominates the psyche of our young nation. Sooner or later, any new government will have to focus on creating jobs by kick-starting investments, speeding up clearances and resolving our various policy bottlenecks says Dinesh Thakkar, CMD, Angel Broking.

What is your call on the direction of the Sensex for the next year beginning this Diwali? 

We expect the Sensex EPS to post a growth of 9.6 per cent for FY2014. Attributing a multiple of 15 times to that Sensex EPS, our one-year forward target stands at 22600 points for the Sensex. 

What factors do you see influencing the market in the next Samvat?

Going forward into the next Samvat, the key triggers for the markets are likely to come from export growth, inflation readings and the upcoming elections. I expect a strong export growth to continue on the back of an improvement in the outlook for advanced economies and a weaker rupee. In my view, a significant export growth is likely to be the starting point of overall sustainable improvement in our macro fundamentals. But I believe that better agricultural production during FY2014 will ease higher food prices going forward. 

How do you rate the present macro environment and what is the way going forward for it? 

I believe, exports having reported double-digit growth for three straight months is a positive catalyst for reducing the current account deficit which is now pegged at lower than the government’s estimate of USD 70 billion. Also, given the weightage of value-added exports in our economy of at least about 16 per cent, I believe it could potentially boost investment in the economy and add 150-200 bps to the overall GDP growth. The anticipation of higher agricultural production is also expected to boost growth, mainly in rural areas. At the same time, though, industrial and services sector growth is likely to moderate, a sustainable improvement rests on growth in investment, which is slated to gain pace post elections. I believe, growth is bottoming out in FY2014 and going forward a revival in capex would pave the way for a turnaround in the economic cycle.

With a new government slated to come in, do you see any significant changes in the investment climate?

Even in the past, India has had fractured mandates. However, the country has still managed to grow at 5-6 per cent in those times. Ultimately, any democratic government has to act as per the needs and aspirations dictated by its demographics and in India if there is one thing that dominates the psyche of our young nation, it is growth. Sooner or later, any new government will have to focus on creating jobs by kick-starting investments, speeding up clearances and resolving our various policy bottlenecks. 

What sectors or stocks are you betting on for the next one year? 

With challenges persisting in cyclical sectors from a near-term perspective, I continue to be over-weight on export-oriented sectors like IT and pharmaceuticals. I am also positive on the metal space. Although expensive, defensives like the FMCG sector are also likely to continue to outperform in the current environment. 

Any other asset class that you think will remain in the limelight till next Diwali? 

I believe that equity would be the best bet as I expect equities to outperform other asset classes. Historically, we have seen that with a long-term perspective, staying invested in equities offers relatively higher returns. In my view, it is a matter of time that equity as an asset class will once again be in the limelight. 

What are your suggestions for retail investors keeping in mind the current market scenario? 

I would recommend retail investors to focus on high-quality companies. Given the present scenario, I advise investors to approach the markets with a longer investment horizon.