Indian equities are in the midst of a bull market, said Ridham Desai, head-India equity research & India equity strategist at Morgan Stanley, on Friday. He believes India will escape the second wave of COVID-19 with a much lower economic impact.
“We have to bear in mind that we are in the midst of a bull market; this is a bull market correction and we will keep getting such corrections and then at lower levels people will start reengaging,” Desai told CNBC-TV18.
“I do not see much to change the structural bull market call, there are risks on the horizon but the underlying trend is bullish and in that you get corrections. I don’t know if this correction is done and dusted, but I would be a buyer in these corrections,” he said.
“The COVID situation is grim especially from the human aspect, but the economic impact on the second wave remains limited. So I guess we will escape this with a much lower economic impact and also what the market has learned from successive COVID waves across the world is that much of the economic impact is temporary; what happens during the COVID wave is people lift their savings rates and then they come back and spend that money,” he said.
Desai is more bullish on midcaps and small caps, compared to large caps.
“The underlying thesis is simple if we are in a new economic cycle which I think we are in, we are in a new profit cycle, I think we are in – the broader market benefits more than the narrow one. So the companies that did a very good job over the last 5-7 years, during the economic recession, will lose share in overall profits,” he said.
Desai is bullish on financials even though the sector has been under pressure of late, given its direct co-relation to economic activity.
“We are the start of a new economic cycle and financials will deliver better performance because they will see expansion in credit growth. There may be a bit of pressure on margins in the interim because we are still in a low rate environment, but within the banking space the mid and small may outperform the large,” he said.
According to him, IT companies will continue to deliver good growth during the pandemic. “The companies have fared exceedingly well through the pandemic and structurally the story remains very good. I think IT services companies will continue to deliver reasonable growth in the next 4-5 years,” said Desai.
For entire interview, watch the video