[ad_1]
Rupesh Patel of Nippon India Mutual Fund believes India offers a long-term growth opportunity due to factors like favourable demographics, ongoing reforms and focus on manufacturing.
However, in near term, considering where valuations are, one should not be surprised if market corrects or remain subdued for some time for earnings to catch up, the Senior Fund Manager – Equities says in an interview to Moneycontrol.
Rupesh with more than 18 years of experience in equity investments is positive on both lenders and non-lenders. He believes India is at an early stage of next credit cycle.
He likes businesses in life insurance, general insurance and asset management space and sees them as proxy to play longer term theme on financialization of savings.
Q: Do you expect any possibility of major correction in the equity markets, though there are more positives than negatives now?
It is almost impossible to predict market directions over short term. Equity is a volatile asset class and it is difficult to pin point reasons, timing and extent of correction. There can be many reasons for corrections such as liquidity, sentiment, high frequency economic data, news flow, corporate announcements to name a few.
We believe, India offers a long-term growth opportunity due to factors like favourable demographics, ongoing reforms and focus on manufacturing. However, in near term, considering where valuations are, one should not be surprised if market corrects or remain subdued for some time for earnings to catch up.
Also read: RBI likely to keep holding rates despite inflation easing in August: Experts
Q: Any risk factors that can dampen market sentiment in coming quarters?
Although, the outlook in terms of earnings growth remains positive, recent spike in crude oil prices, weak consumer demand, erratic monsoon, domestic political risks and external risks with respect to geopolitics, interest rates and currencies are some of the factors to watch out for.
Q: What do you make out of the so far US economic data? Do you think the market is least bothered about Fed rate hikes?
I think, it would not be right to say that markets are least bothered about Fed Rate hikes. I believe, the recent US economic data has strengthened market’s expectation of no further rate hikes in this cycle. Further the outlook on US economic growth and earnings expectations, particularly for high growth US companies, has held up pretty well, thereby supporting markets.
Also read: Inflation is falling but don’t uncork the bubbly yet
Q: Do you see more value in PSUs now and is it the time to take big exposure to the same?
Lot of PSUs have done very well in terms of stock price performance recently. In most cases this performance is backed by change in fundamentals and low valuations post covid. Some of that positive change is driven by government policies like in case of defence PSUs, their orderbooks provide visibility for growth for next few years.
At the same time there are PSUs where valuations look very cheap, but the volatility in their earnings because of commodity nature of businesses, inefficient capital allocations or risk on terminal value of the business, it may be difficult to make an investment case.
Hence, instead of generalising the outlook for PSUs, right approach would be to analyse each company independently on its growth prospects, capital efficiency, governance standards, valuations and various risks, the underlying business faces.
Q: Do you think the IT space has priced in all negatives? Are you increasing exposure to the space?
We have seen growth expectations for IT sector being revised downwards in last few quarters. Overall global slowdown has led to continued uncertainty in discretionary IT spends, clients taking longer to close deals and deal ramp ups getting delayed. We believe, these risks are real and there is still downward risk to company’s earnings.
Also read: RR Kabel mops up Rs 585.62 crore from anchor investors ahead of IPO
However valuations as compared to these companies’ own long term historical averages or with respect to global peers are on the higher side. Hence, we continue to maintain underweight stance on the sector and would look at relatively better entry points to reduce our under weight in the sector.
Alternately because of the nature of these businesses in terms of capital efficiency, high cashflow conversion, distribution to shareholders by way of dividend/buybacks, debt free balance sheets and generally good management quality, they can become good defensive holdings, in case markets turn volatile.
Q: Is the broader markets space looking overbought?
We have seen small and midcap as a category outperforming large caps post Covid by a significant margin. A lot of this is driven by liquidity chasing returns in the category. Although smaller market cap companies have potential for high growth, however, they can be very volatile in terms of their financial as well as stock price performance.
At current valuations, the growth prospects for many such stocks seem very well discounted and leaves very little room for disappointment. Current valuations do not factor in potential risks like impact of global slow down, weak consumer demand and changing competitive landscape.
Although in the near term, liquidity may keep stock prices buoyant, however, eventually, stock prices will have to pause or correct to allow for earnings to catch up. We believe, at current levels there is better risk reward in relatively larger cap opportunities.
Also read: Paytm will not need funding in near future with free cash flow: CFO
Q: What is your view on financials?
We are positive on both lenders and non-lenders. We believe, we are at an early stage of next credit cycle. Deleveraged corporate balance sheets and green shoots on capex recovery are positive indicators for wholesale credit demand going ahead. Retail demand is structural in nature and is likely to remain strong.
Asset quality for banks remain benign and most of them have healthy capital adequacy ratios positioning them well to support future growth. And above all, though fundamentals for banks are at their best, valuations are not excessive.
Increasing share of financial savings in overall savings makes even non-lending businesses attractive from medium to long term perspective. We like businesses in life insurance, general insurance and asset management space. We see them as proxy to play longer term theme on financialization of savings.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
[ad_2]
Source link