Dalal Street Voice: Government Might Be Able To Meet Fiscal Deficit, Thanks To Lic Ipo: Ricky Kirpalani Of First Water Capital Fund

By Author: Ricky Kirpalani
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Ricky Kirpalani, Lead Sponsor, First Water Capital Fund (AIF) said that the 2022 Budget might be the last chance for the current government to push through economic reforms as 2023 is likely to be a populist budget given the upcoming elections.

Ricky is a logic-based value investor with over 30 years of experience. Prior to launching First Water Capital, he was an independent business analyst and ran a private pool of capital generating alpha with a USD CAGR north of 30% and a multiple of 55x over a `timeline of over 15 years.

In an interview with Zeebiz's Kshitij Anand, Kirpalani said that we are hopeful that infra as a sector continues to be in focus, while the 'Make in India' theme is likely to boost textiles and electronics. Edited excerpts:

Q) What are your views on the markets in 2022 after over 20% gains in the previous year? We have already seen some knee-jerk reaction amid the US Fed hike, but the bulls managed to hold on to gains.
A) While we prefer to look at the long-term, we believe that 2022 may see some moderation in returns given that the possible US Fed hikes continue to weigh down ...
... on sentiment and equity flows.

Q) What are your expectations from Budget 2022 from the finance minister? Do you think the government will be able to maintain the fiscal deficit target?
A) The 2022 Budget might be the last chance for the current government to push through economic reforms as 2023 is likely to be a populist budget given the upcoming elections. The fiscal deficit may well be met thanks to the LIC IPO.

Q) Which sectors are likely to be in the spotlight in this Budget 2022?
A) The automotive sector might benefit with more of an impetus to EVs. Ethanol plays, too, should benefit from the focus on blending.
We are hopeful that infra as a sector continues to be in focus, while the 'Make in India' theme is likely to boost textiles and electronics.

Q) Any stocks which you think could be in focus (economy-linked or high bets stocks)?
A) Hospital stocks such as Apollo and Diagnosis, Metropolis, and Dr Lal PathLabs may see the good focus as earnings will receive a fresh shot in the arm from Omicron.

Q) How do you see India Inc. faring in December quarter earnings? Will it get impacted by the restrictions as well as curfew imposed in various states of India?
A) No, the impact of these curbs should only be at the margin. December quarter earnings are likely to continue being buoyant for a number of sectors.
There may be, however, some impact on the overall chemical and commodities sector due to the decline in realizations as a result of China’s real estate slowdown.

Q) What should retail investors be prepared for in 2022 – amid the rise in valuations, 2 straight years of double-digit gains, as well as macro-environment? Do you see a similar rise in Demat accounts as we saw in 2021 in 2022 as well?
A) 2021 was generally a great year for retail investors irrespective of when they entered. 2022 may continue to be good but it won't be all easy pickings as there are several sectors already at pricey multiples.
So, it may be a good idea to partially rotate into value stocks. Investors may do well to moderate their expectations and brace themselves for some volatility.

Q) If US Fed plans to hike rates in 2022 then should one add more international funds, stocks, ETFs to their portfolio?
A) If Fed hikes rates, then this is likely to reduce flows to equities as an asset class. However, Emerging Markets like India should remain a preferred bet.

Q) Market looks overvalued from the Warren Buffett indicator (Mcap to GDP). Should investors be worried?
A) I don’t believe so. These metrics aren't sacrosanct nor set in stone especially when loss-making start-ups are contributing to the market cap.
We believe that it is a tale of 2 cities out there with some sectors at fancy multiples while others are still available at relatively decent valuations.

Q) The second phase of the Green Energy Corridor of the Intra-State Transmission system has been approved at a cost of Rs 12,000 crore by the Union Cabinet. Which sectors are likely to get the benefit from green energy?
A) Transmission players like KEC and Kalpaturu are likely to be major beneficiaries. Power ancillary manufacturers should also benefit.

Q) Any top 3-4 success mantra for retail investors for 2022?
A) Don't get carried away by rumour mills or by hype, stagger in your investments and stay with good quality fund managers with a long-term track record.

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