DAILY VOICE | Amar Ambani of YES Securities sees Sensex at 1,25,000 by 2025; says outlook for next 4 years extremely positive

Amar Ambani Head Institutional Equities, YES Securities, sees the Sensex reaching 1,25,000 by December 2025, as he believes that the outlook for the next four years is very positive.
Amar Ambani, a market veteran for over 15 years, is here to help. He is responsible to drive all aspects of Yes Securities' institutional broking business.

Sunil Shankar Matkar from Moneycontrol spoke with Ambani to advise long-term investors to keep their investments. You can still invest at high levels of capital if you use a stock-specific approach.

Edited Excerpts

Q: Foreign investors have returned to India following the Fed'sdovish comments. Do you believe the FII flow in the remainder of the financial year 2021-22 will continue, given the US economic data and Fed action?

Due to strong consumer spending, the US economy has returned to pre-Covid levels. Largely, the lost jobs have been also reclaimed. The recent frequency indicators indicate that the economic momentum is slowing down. Due to the persistent core price pressure, US inflation expectations are still high. Real yields have fallen to negative territory.

The US Fed plans to gradually reduce asset purchases starting next year. This reduction will likely last for at least a year and half. Yields will not be affected by a gradual and carefully controlled curtailment of the asset purchase program. We believe yields will remain stable for some time due to the excess liquidity of over $1.2 trillion that is sitting in the US reverse repo window. This was due to a shortage of Treasury paper supply. We expect Fed to remain neutral on interest rates until 2023 based on projections. Fed's dots plot does not indicate any intention to change interest rates over the next 18-months.

We expect FIIs to favor Indian equities in the next three years. Although the near-term is harder to predict, historical data shows that FIIs have been net purchasers of Indian equities for most of the last 20 years, with the exception of a few years. We can therefore expect that the flows will continue to increase in FY22, and beyond.

Q: Do you believe there are opportunities to increase the market's performance and reach 20,000 on the Nifty50 by FY22?

It seemed like a stretch of imagination to predict Nifty crossing 18,000 this year. But, it looks like it is now. Although I don't rule out Nifty reaching 19,000 to 20,000 in the future, it is possible. However, the longer the forecast, the more uncertain. With conviction, I can say that the outlook for the next four years looks very positive. Given a number of favorable factors, such as a marked business shift from unorganised to organised space, acceleration in digital supercycle, sustained margins from pandemic-enforced cost management, and prudent cost management that benefits the listed space, I see the Sensex reaching 125,000 by December 2025. India will be greatly helped by the government's focus on infrastructure, PLI (Production-Linked Incentives) schemes, and China+1 sentiment, even though capital costs remain benign and rise very slowly.

We see strength in large caps such as Reliance Industries and ICICI. IT Services, Bharti, and other similar companies. Given the high demand from all segments of investors, including retail, HNIs, FIIs, and DIIs alike, the market is surprisingly buoyant.

Q: Should I be cautious? Book profits? Or stay invested with the market if there are 10 percent returns starting in August?

Investors who are long-term should hold onto their investments. A four-year view of the market was bullish. We were bullish from a four-year perspective. However, we recognize that corrections will happen from time to other, which is actually healthy for any market cycle. You can still invest at high levels of capital by choosing a stock-specific approach. You can profitably exploit a market opportunity to increase quality names by finding a lower-cost option.

Q: Market support continued in August despite the lack of FII flows. What advice would you give these new age investors in this situation?

The new generation of investors is more tech-savvy and has many digital tools to assist them in making informed decisions. They don't have preconceived notions and are open to new business models such as ecommerce and gaming. They can combine their inherent strengths with old investing principles such as investing within their circle of competence, having a well-defined risk appetite, sound temperament, and a disciplined approach to make the most of investment opportunities.

Q: Realty stocks have gained more than 12% in the past two weeks. Are these stocks worth adding to your portfolio?

After a long downcycle, we are optimistic about the listed real estate package. The sector's key theme is consolidation, which has been intensifying in the last few years. Even though overall realty volume may not rise, developers who are skilled will see an increase in their volumes. Many listed companies have stronger balance sheets after the downturn. This is due to careful discipline and conscious conservatism. Despite the rally, stock prices do not reflect the true value of certain businesses, such as retail, office assets, and hotels.

Q: What sectors can you see from a 1-year perspective on?

The building materials packs are very popular with us. In the near future, affordable homes will experience high absorption. The government will continue to invest in infrastructure. This will create a huge demand for pipes and plywood, MDF laminates, paints cement, laminating, paints, glues, cables, and wires. These companies are popular. We love the EPC market and its well-run companies, which will see high order inflow and operate at healthy margins.

Q: Do banking and financials represent the next major driver of the market rally's success?

The end of the protracted corporate NPL cycle has been completed by banks. Due to the pandemic effect, they have not yet fully reaped these benefits. A re-rating of the banks is expected in the near future. The pandemic has not caused any permanent asset quality problems for banks, according to our estimates. Even if there is a third wave, any damage to assets and disbursement will not be as severe as the second wave.

Life insurance, unlike other financials is a structural story. The elevated death claims would be largely temporary. Reinsurance pricing is unlikely to be affected by the pandemic. Asset management is a great play on non-deposit Indian Financial Savings. The resumption net equity inflows to the sector are a good sign, both from an AUM standpoint and from a profitability perspective.

Q: Can the economy grow by double-digits in FY22, despite the third Covid wave risk

The frequency indicators show that the economy has escaped the second wave lockdown more effectively than the first. Due to healthy revenues and earnings from non-financial ranked companies in Q1FY22, the formal sector has been resilient to the pandemic. Although the threat of another Covid wave is real, disruptions to economic activity are not likely to be severe.

The rebound in Q1 FY22 GDP is impressive, but the numbers are less readable due to the large base effect over the past year. Although aggregate demand and private consumption are still below pre-Covid levels they should be able to regain those levels by 2021. We expect FY22 GDP growth to be in the range of 9 percent. This is around 100-bps below a double-digit rate.

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