Buy on Dips....

While it is prudent to brace for some more short-term weakness, the key question is whether investors should run away amid the softness or invest more amid correction. Investors should use this opportunity to buy on decline and the reasons are not hard to find.

Unlike the past when FIIs used to rule the bourses, the long-term journey of Indian markets will ride on domestic liquidity. India’s changing demographics with a young population having no social security benefits coupled with negative real interest rates, augur well for domestic inflows to equities. The record number of new demat account openings and the soaring monthly contribution to SIP (systematic investment plan) stand testimony to the same. This domestic liquidity should provide downside support to equities.

On the other hand, earnings, which is the ultimate driver of equities irrespective of myriad noises, is looking stronger than ever before. The revival from Covid’s deadly second wave has been sharp and swift in India. Growth is looking up and the impact of Covid has been positive for organised players who have pushed efficiency to the hilt and managed their houses well despite extreme gross margin pressure due to a rise in raw material prices.

Do not expect any major negative earnings impact on Nifty in the next couple of years, as the two heavyweight sectors, namely financials and technology look to be in fine fettle. Riding on recovery and better asset quality, we expect financials to manage the marginal pressure on interest margins. The unprecedented demand for digitisation and the gradual easing of talent shortage augur well for technology earnings, and the currency depreciation could be a feather in the cap. The diversified heavyweight conglomerate Reliance Industries should continue to benefit from recovery in all its businesses. With very little weight of cyclicals, we rule out  meaningful downgrade to Nifty earnings.