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    Four themes that will give opportunity to multiply wealth over next 5-6 years: Sanjay Sinha

    Synopsis

    “If 2022 is going to be a year which will challenge the equity return, at least for the next four years, we will probably have one of the most beautiful years in terms of the rally in the Indian equity markets. ”

    Sanjay Sinha-Citrus-1200ETMarkets.com
    “In the midcap space, one can straightaway look at the so-called unlock plays, sectors which had been out of favour specifically with reference to hospitality and many of them are midcap stocks and they are back in favour. These include entertainment, construction and capital goods and auto ancillaries sectors, ” says Sanjay Sinha, Founder, Citrus Advisors.

    Did you manage to reduce some of the midcaps from your portfolio before the 30-40% decline? What are you aiming at right now?
    The correction in the midcap stocks has not been happening only in the last three-four months. It has actually been happening over the last full calendar year because contrary to what we saw in terms of the Nifty midcap index movement, individual midcap stocks had corrected from their 52-week high by as much as 25%.

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    We did an analysis ourselves and we found that as many as about 60% of the midcap stocks had corrected by 20% or more from their 52-week highs even before the index corrected. Therefore midcaps are more a function of bottom up opportunities that one needs to enter and exit. So, it has not been an across-the-board reduction in midcaps, but given the last phase of the rally that we have seen over the last three weeks, where we have seen a frenzy in a large number of penny stocks and small cap stocks. Of course, the caution level has been higher but I will not write off midcaps completely. There are still opportunities in midcaps.

    What are your structural calls for the next three to five year?
    If 2022 is going to be a year which will challenge the equity return, at least for the next four years, we will probably have one of the most beautiful years in terms of the rally in the Indian equity markets. This is one rally in which the larger population of India will be able to participate because the demat accounts are now in excess of 7 crore. More and more people are now participating in the equity markets and are also to some extent familiar with the risk and reward opportunity in equity.

    The equity market rally and the ability of people to translate that rally into their wealth creation is something that is happening. They need to focus on capturing the one thing which has turned out to be a promising opportunity as far as India is concerned. The IT sector has adapted to all the changes which have happened globally either in terms of currency or in terms of business opportunity or in terms of even the side effects of the pandemic. The IT pocket will be one place where people should look at opportunities and within IT, a lot of things are changing. The transition towards digital and the move towards platforms, the ability of product companies to leverage all these three areas within IT would be opportunities that people can capture on.

    The other opportunity in my opinion would be the play on domestic consumption where probably part of it is getting translated. While the second quarter results may not have impressed people too much, we cannot ignore the fact that year on year the profits went up by almost 48% and quarter on quarter the profits went up by 28%.

    I think that is probably one of the reasons why the markets have breached the level of 16800 or so. With that sort of profit growth, people can look at the domestic consumption where the story is doing well.

    The third opportunity is in sectors with PLI opportunity.

    Last but not the least, any company with decent margin which is going in for capacity expansion is one opportunity that people need to grab. Broadly speaking, these four years will give enough opportunity to multiply your wealth over the next five-six years.

    What are the areas you would aim at building on over the next couple of months in this corrective phase?
    One good thing is that even in the midcap space, one can straightaway look at the so-called unlock plays, sectors which had been out of favour specifically with reference to hospitality and many of them are midcap stocks; they are back in favour.

    Also, the entertainment related space is again back in favour. These sectors had not participated in the movement of the market in a very significant way and these sectors have a lot of room for unlocking. Along with that, if we see the response of the Indian population to unlock, people are travelling and consuming like never before. That is an immediate opportunity one can look at.

    The other opportunity is in construction and capital goods space. There are a lot of midcaps one can look at.

    The third space that looks attractive would be auto ancillaries. Despite the fact the larger auto companies do not seem to be doing so well – either in terms of stock price performance or in terms of their quarterly performances. Many of the auto ancillary companies are doing quite well. Maybe part of the credit goes to the fact that they have a good export component in their revenues. The other part could also be the fact that you know many of them have grabbed the EV opportunity very quickly and therefore that is also a space which looks promising. So these three sectoral plays within the midcaps look promising.

    There is a view in the market that 2022 would be the year of reserving the returns that one has made in the last two-three years. One has to be very choosy and be mindful while investing. Should this advice be taken seriously and could 2022 be a challenging year?
    I also endorse that point of view and that has got probably more to do with what is happening globally. Last night’s FOMC meeting and the decision to aggressively taper down and go in for three rate hikes in the calendar year 2022, in my opinion will have a cascading effect on the flows that the emerging markets in general and India in particular has got.

    We have seen one big impact of the FII outflows over the last 30-40 days where they have been relentless sellers but the impact on our market has to a large extent been absorbed thanks to the buying that we have seen from the domestic mutual funds. But if this quantum of selling becomes higher and if the domestic mutual funds for a period of time do step down, I do not think the retail participation that we have seen in the market can offset that amount of liquidity being sucked out from the market.

    Going by what has happened in the past and especially what happened in 2000-2001, and also in 2008, the first bust of liquidity getting sucked out from the market or negative flows from the FIIs will lead to widespread stock price correction and there the midcaps will correct more. But therein lies the opportunity. The way to play this would be to be a little prudent, a little patient and it is probably a time to preserve your returns and maybe take some of the profits off the table and keep it with you because if 2022 is going to be a year of challenge, it will also be an year of opportunity because one will probably get stocks at mouthwatering prices and also those stocks which have missed out in the rally of 2020 and 2021 at very attractive prices.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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