According to Pranav Haridasan of Axis Securities, double-digit gains on Indian stocks are expected over the next two to three years

 According to Pranav Haridasan of Axis Securities, double-digit gains on Indian stocks are expected over the next two to three years

According to Pranav Haridasan, MD & CEO of Axis Securities, Indian stocks would rise since the country's economy is still growing at a healthy pace. In addition, the strengthening of corporate India's balance sheet and the much better state of the Indian banking system are further factors that will support double-digit returns on Indian stocks over the next two to three years, driven by double-digit increase in profits. Haridasan discusses his opinions on markets and the economy in an interview with Mint. Revised passages:  

What are your thoughts on India Inc.'s Q2 results so far? What kind of upgrades or downgrades in earnings do you anticipate?

Thus far, the Q2FY24 earning season has met our expectations. Large-cap IT services firms reported a subdued Q2FY24, as expected, mostly as a result of difficult circumstances in the biggest countries in the world. 

Because of the holidays, the December quarter for IT firms is also seen as a typically bad quarter. 

In Q4FY24, we may anticipate a little rebound and an acceleration of the transactions they closed in the preceding quarters.

The demand for FMCG products is steady in Q2FY24, with urban demand continuing to dominate and rural markets staying quiet. 

Nonetheless, a slow but steady rebound in the industry is anticipated in the following quarter, particularly in the rural regions, driven by:

 (a) Government capital spending that generates employment.

 (b) Q3's holiday season.

 (c) A rise in remittances from cities.

 (c) The inflation's moderation.

Furthermore, the luxury categories are still expanding more quickly than the mainstream market.

Heavyweights in finance had strong results with a steady trend in asset quality, while there was some margin pressure throughout the quarter. 

Since we are still in the early stages of the earnings season, we project Nifty FY24 and FY25 earnings to be 928 and 1,048, respectively, with growth forecasts of 17% and 13%, respectively. There haven't been any notable departures from our original projections so far. 

We will reassess our projections when the earnings season is over.

How do you see the market in the near term? Should we maintain a low bar for ourselves?

Geopolitical concerns, the US 10-year yield breaking over 5%, and the upswing in oil prices will provide short-term headwinds that will make us more cautious and better timing our entry positions. 

In addition, volatility is expected to rise from present levels over the next 12 months due to many primary state elections that will take place in the next months as well as the general election that will take place the following year. 

However, the Indian economy is still expanding at a healthy pace, which will continue to be the key factor driving Indian stocks in the future. 

Another encouraging and noteworthy development is the strengthening of corporate India's balance sheet and the significantly better state of the Indian banking system, both of which will make it easier for Indian equities to generate double-digit returns over the next two to three years, driven by double-digit growth in earnings.

With an investing horizon of 12–18 months, we advise investors to retain strong liquidity (10–20%), take advantage of any declines gradually, and establish a stake in high-quality firms (where the earnings visibility is quite high).

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What approach ought we to take right now in the mid- and small-cap space?

The benchmark index has underperformed the market as a whole during the last year. The mid/small-cap index showed a significant rebound from its March 2023 low. 

Since then, the market has significantly rebounded, and as of September 2023, 86% of the stocks are trading above the 200-day moving average, suggesting that the market is getting close to the overbought area. After this, there will probably be a style and sector rotation in the market. 

Given the notable surge in midcaps and smallcaps over the last several months, we think that, in comparison to big caps, the margin of safety has shrunk in some areas at the present levels. 

According to this perspective, flows will probably go to big caps and the overall market may see a brief drop in the near future. Nonetheless, the market's overall long-term narrative is still compelling.

Furthermore, the present domestic play cool-off in commodity prices and inflation, together with the prospect of a rural recovery in the approaching quarters, make "growth at a reasonable price" desirable.

Do you believe that going forward, the US Fed may raise rates? When do you think interest rate reductions by the Fed will begin? 

The recent increase in the yield on US 10-year bonds suggests that the FOMC meeting this coming week may include one possible rate rise. 

Given that the US economy is now showing some strength, the 10-year US Treasury note might continue to be redeemed for longer than certain segments of the market had anticipated. 

Although expectations are now kept in check by persistent inflation and economic data, a weaker bond perspective may start to emerge in the second half of 2024 (H2CY24).

How would an economic downturn in the US affect the Indian market? 

We may anticipate one rate rise in the US market before the US Fed takes a break, since the US economy is at the apex of its cycle of rate increases. 

Such interest rate increases have not been seen by the market recently, which increases the likelihood of errors. 

This move would cause the developed market to slow down or enter a deeper recession, which would have an effect on the local market's export-oriented growth. 

As a result, some segments of the domestic market's profitability and market multiple will face difficulties.

Despite the turbulent global economy, the Indian economy is still on a stable development trajectory and remains the land of opportunity. Going ahead, this development would continue to be the primary catalyst for Indian equities. 

Other noteworthy positives are the strengthening of corporate India's balance sheet and the far better state of the Indian banking sector, which will make it easier for Indian stocks to generate double-digit returns over the next two to three years.

Why, in spite of the prospect for strong economic growth, are foreign investors dumping Indian equities? How much longer will it last?

The previous few weeks have witnessed selling by foreign investors (FIIs) in the domestic market, driven by an abrupt increase in the rates on US bonds and a rise in the dollar index. This tendency is more tactical than strategic, however, since any easing of the bond yield and dollar index is a good indication for flows into developing markets. 

Given the potential of our home market and the continued major rotation out of China from a structural economic standpoint, we believe that India will continue to draw a sizable level of attention from international portfolio investors. Indeed, the current selling is more speculative, and we anticipate a stabilization of the flows.

Which industries do you think will do well over the next one to two years?

This next leg of the domestic market rise will be led by all of the key economy-related industries. 

Import substitution, premiumization, financialization and digitalization, and manufacturing are the four areas that will command attention going forward. 

Building materials, hospitals, cars, industrials and capital goods, and BFSI are the main industries that stand to gain.