Worst is over for larger NBFCs with sound business models: Vinay Agrawal, Angel Broking

Retail investors should look at broader markets, take a bottom-up approach and focus on buying sound businesses with strong competitive moats, Vinay Agrawal, CEO, Angel Broking tells ET Wealth.

Do you expect the extreme market polarisation to continue this year?
In 2019 we witnessed a very narrow market where few of the Nifty stocks performed well. This lifted the benchmark Nifty to new highs, even as the broader markets remained under pressure. However, we do not expect the polarisation to continue this year. There is already some sense of stability in the broader markets, and we are seeing more and more sectors participating in the rally. We expect that as the economy recovers, the rally will get broad-based.

Are the frontline indices ripe for correction? Will broader markets make for a good hunting ground now?
We are positive on the outlook for broader markets and believe frontline stocks will continue to witness an upward trend. We expect Nifty to deliver returns that would be in line with the previous years. While the midcap index is still down by 20% from its peak in January 2018 and is trading at more than 20% discount to Nifty, as compared to an almost 40% premium in January 2018, there are enough companies with quality businesses worth investing in.

We believe that the retail investor should look at broader markets, take a bottom-up approach and focus on buying sound businesses with strong competitive moats, as these companies will be able to generate superior returns over the long run consistently with lower volatility.

Growth and quality ruled the charts in the past decade. Do you see value or any other theme making a comeback this decade?
Growth and quality themes will always continue to do well. India is a growth market and will be amongst the fastest growing economies in the world. Major structural reforms coupled with the NBFC crisis impacted growth and profitability in the recent past. Now with the worst of the NBFC crisis behind us, gradually liquidity concerns are being addressed. This coupled with government initiatives should accelerated economic growth from here. We also believe that there could be value plays in cyclical sectors where profitability has been adversely impacted.

Which sectors or themes do you find interesting now?
We have been and continue to remain positive on the consumption story, in line with retail and corporate private sector banks. The growth story for both consumption and private banks still have a long way to go as we migrate from a developing to a developed economy. In the consumption space, we like both the staples and discretionary space, which have been impacted by the slowdown. At the present valuation, this space provides investors with a good entry point in an otherwise expensive sector.

In the private sector, retail-focused banks continue to do well. Large corporate-focused banks too have turned around over the past two quarters with the worst of the NPA cycle over. We also think that the worst is over for larger NBFCs with sound business models and they should also do well going forward.

Gold made a comeback in the last two years. Do you see it continuing its run?
Gold prices recorded its highest gains since 2010, clocking 20% returns in the domestic market. Key drivers for higher prices were macro economic shifts in global markets, easy monetary policy of central banks, USChina trade war jitters, geopolitical risks, Brexit concerns and strong inflows in global gold ETF leading to 35% growth in their AUMs. Most of these factors shall continue to further drive gold prices higher, with crude prices also showing signs of trading firm in 2020, making investments in the metal lucrative.

With entry into zero brokerage, are you looking to push back new-age discount brokers?
With only 40 million demat accounts, India’s broking industry is at a very nascent stage leaving enough room for all players to grow. Through Angel iTrade Prime, we offer efficient trading and investing experience to the growing and ambitious India. We focus on handholding them through their journey of wealth building while keeping costs low. Our zero brokerage for cash delivery and only Rs 20/order for intraday, F&O, currencies, and commodities is aligned to achieving the same.

How are digital tech-driven platforms and advancements enabling retail investors?
The easy availability and affordability of smartphones and mobile data is opening new avenues in the world of retail investments. By commissioning a digital tech-driven platform, we are not only able to serve a large customer base and remain cost-effective but are also passing on the benefits of digitalisation, simplicity, and scale to our consumers. This helps to eliminate barriers and open up the markets to a larger customer base.

How is the broking industry placed with rules now insisting on the separation of client shares from broker accounts?
We believe the regulator has taken these steps to safeguard investors’ interests. Stringent governance is essential for the development and always helps in building robust capital markets in India.

What safeguards should investors have to protect against rising instances of fraud?
Investors need to be mindful and choose their ‘counsel’ carefully. Often, going with the crowd or following a herd mentality makes an investor vulnerable. One should opt for a reliable service provider focused on providing broking services with no or limited supplementary businesses. A leading platform will have the wherewithal to comply with changing regulatory requirements and safeguard the interests of the investors.