Equities may deliver 9-12% return in 2022: Pradeep Gupta, co-founder & VC, Anand Rathi Group

As the benchmark equity indices BSE Sensex and NSE Nifty are set to close the year 2021 with double-digit return despite the ongoing volatility due to the new Covid variant, Omicron, Business Today caught up with Pradeep Gupta, co-founder and vice chairman, Anand Rathi Group to understand what’s in store for the equity investors in the New Year. Edited excerpts.

BT: What are your 2022-end targets for Sensex and Nifty?

Pradeep Gupta: On a longer time horizon, large-cap equities deliver 10 per cent-14 per cent return per annum. With the improvements in India’s macro and corporate fundamentals since the second half of 2020, the possibilities of receiving such returns from the Indian equity market has only improved. That said, it does not mean that equities would provide a double-digit return every year. With over 15 per cent return in 2020 and even better returns in 2021, the possibility of equity return being slightly below the long-term return in 2022 is a distinct possibility.

One should not expect similar kind of returns that were delivered in the last two years, yet we believe that equity as an asset class is still set to deliver 9 per cent-12 per cent kind of upside in 2022.

BT: Give us a few investment ideas for 2022?

Pradeep Gupta: We prefer infrastructure, construction, capital goods, cement and building materials themes. We are also positive on IT-tech given that under the post-pandemic new normal, the earnings growth trajectory of most of these companies would be better than the pre-pandemic averages.

BT: 2021 saw small and mid-cap indices outperforming their larger peers. Can 2022 be any different?

Pradeep Gupta: After underperformance during 2018 and 2019, small and mid-caps have outperformed large-cap stocks during 2020 and 2021. The extent of the attractiveness of small- and mid-cap versus large-cap, both in terms of superior earnings growth and relative valuation, are not going to be as pronounced in 2022 as in 2021. 

Consequently, we think the price performance of the second rung stocks in 2022 would be broadly in line with large-caps in 2022. In addition, given considerable uncertainties and a likely increase in market volatility in the next 12 months, large-caps may be preferred especially over small caps in 2022. In the medium to longer-term, however, mid-cap companies, in particular, are likely to deliver better risk-adjusted returns over large caps.

This, however, is a top-down call. At the individual stock level, there can be more opportunities in the small- and mid-cap space against large caps, especially because of the price corrections since August 2021.

BT: Which are the important announcements you expect in the forthcoming Budget.

Pradeep Gupta: The focus of this year’s Budget is expected to be growth-oriented, pragmatic and on a positive note. I do not foresee the Budget to hurt any fiscal math of the government, I feel that the government would create a balanced budget to take into consideration the growth and also avenues for revenue generation such as disinvestments. Expectations are that the government will take into consideration the impact of the current ongoing pandemic and focus the Budget on the overall growth of the economy.

BT: IPO market kept buzzing through the year. Will 2022 again break the record in terms of new listings?

Pradeep Gupta: Just in the first 9 months of the current year, we witnessed upwards of $9.7 billion inflows via initial share sale and a total of 72 IPO’s listed in the January 21 to the September 21 period, basis a report issued by EY. Although the inflows were impressive, yet we stood at only 3 per cent of the total funds raised on a global level.

Even in the State of Indian Economy report, the RBI said that 2021 could be the year of the IPO’s. RBI said that India’s tech boom has been in the works for since long, with strong global and domestic demands being built up, the current inflows have taken the benchmarks also to record highs. RBI estimates India to have about 100 unicorns, with 3 unicorns per month being added this year. The outlook for 2022 continues to remain positive.              

BT: While FD rates stood lower; do you think flows into SIPs may keep flowing next year?

Pradeep Gupta: I am positive that investor allocation into the equity market via SIP’s would continue to remain strong.

BT: What is the right asset allocation strategy considering the current market scenario?

Pradeep Gupta: Investors should consider three major aspects before making any financial decision, which is: risk-taking ability, a time horizon of the portfolio and return expectations. This does not and should not depend on the phase of the market and business cycle. It’s the time in the market and not the timing of the market that attributes to consistent long term wealth creation. Also, whenever there is a deviation from the original set asset allocation plan, the investor needs to rebalance their portfolio accordingly.

Basis their risk profile, an asset allocation is devised, which is unique to their own objectives. One can get in touch with their investment advisor for a detailed asset allocation plan suiting their own risk profile and time-defined goals.

BT: What are the 3 key risk events for equities next year and how should investors position themselves?

Pradeep Gupta: The equity market by nature is volatile. It is extremely difficult to predict the short-term movements of the market and 5-10 per cent market corrections are rules rather than exceptions.  Such corrections can happen at any time including in the near future. This possibility, however, does not change my positive view about the Indian market in the medium to longer run. The risk I foresee looming over the market is any geo-political or any unforeseen event-based risk such as the pandemic worsening, natural calamities, also inflation has become a global concern which may impact short to medium term period due to a knee-jerk reaction to such events.

Apart from inflation, the RBI is likely to tighten both liquidity and policy rates from the current extremely accommodative positions. We expect that to happen soon and the equity market may be factoring in the same. Therefore, while I am positive on the medium to long term outlook of the Indian equity market, this, by no means, as mentioned earlier also, imply that the market movement will be unidirectional, in the short term the volatility is expected to continue.

BT:  Any advice would you like to give to investors for 2022?

Pradeep Gupta: Firstly, the consistent and less risky way to make a significant portfolio return is to remain invested in the market and not to get unnerved by the possible or actual corrections in the equity market. Secondly, patience and sticking to a well-desired asset allocation strategy are the two most important ingredients in the making of a successful investor.

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