Mutual fund ownership of Adani group stocks is not very high: Equirus

Primary markets will take few months to recover, says Ashutosh Tiwari of Equirus. Investors, he said, are now only interested in businesses which have better historical growth and cash flow profile.

It has been a choppy start to 2023 for the markets. ASHUTOSH TIWARI, managing director – research at Equirus, tells Puneet Wadhwa in an interview that global liquidity is likely to remain tight going ahead, which combined with recession fears, might keep the market volatile in the near-term. Edited excerpts:

What's your outlook for the Indian markets for the next few months?

Over the last 17 months, Indian markets have witnessed healthy consolidation and Nifty’s forward multiples have also come down. While still higher than historical average, it’s now close to five-year average. India is better placed in terms of growth versus the other countries due to higher internal consumption, localisation of imports and better exports opportunities emanating from China +1 as well as manufacturing shift from Europe. We see decent return in the market from a one year perspective; however, global liquidity is likely to remain tight, which combined with recession fears, might keep the market volatile in the near-term.

How seriously have the developments with the Adani group dented investor sentiment?

Mutual fund ownership of Adani group stocks is not very high, and therefore we don’t see it impacting the sentiment much. This is because a number of retail investors invest through systematic investment plans (SIPs) in mutual funds. From the FII perspective, the sharp volatility might keep them in wait-and-watch mode in the near term, but ultimately India’s attractiveness in terms of growth potential will play out.

A number of infrastructure projects in India are being executed by the Adani group. Do you see any repercussions given the recent developments?

These assets are eventually backed by an annuity model. We don’t think there will be any execution risk. Investors should look at quality infrastructure companies with lower leverage and better cash flow profile.

How has the December 2022 quarter earnings played out according to you?

The December quarter has been soft in most of the industries due to demand slowdown post festivals. Revival in rural India is critical for sustainable overall growth. The Rabi crop is expected to be good considering the estimates so far, and if monsoon also goes well then rural incomes will revive. Manufacturing is likely to be a key growth driver for India over next few years and hence capital goods, industrial, building material and autos are likely to do well in fiscal 2023-24 (FY24). We remain overweight on autos, capital goods, infra, building material and Industrial sectors; underweight on metals.

How are you approaching the stocks of new-age companies now after the correction seen in the last 12 – 18 months?

Days of easy liquidity are gone and hence focus is shifting to businesses having moat to deliver long-term advantages. Some of the new age businesses have long-term potential as they are creating good moats. Their segments will be dominated by two-three players only in the longer run. Investors should focus on the companies that can turn profitable early and have large addressable opportunities.

Watch Video: Is the time ripe to bet on new-age tech stocks?

What’s the road ahead for the primary markets over the next few quarters?

Primary markets will take a few months to recover. Investors are now only interested in businesses which have better historical growth and cash flow profile. Due to a correction in small and mid-cap companies’ multiples, there is more value in many listed companies with established track records. On the other side, shareholders of private companies must reset their valuation expectations given the decline in the overall liquidity.