In an interview with Moneycontrol, Nikhil Vikamsey, Senior Partner at Alpha Capital, said that the macroeconomic indicators indicate that the earnings trajectory is likely to align with or potentially surpass the estimates. “In short, we don’t see any major threat to earning estimates,” he added.

He believes FY24 – FY25 should deliver as expected as there won’t be any large uncertain events to unfold.

Regarding potential market corrections in the future, the seasoned chartered accountant with more than twenty years of professional expertise asserts that a significant local correction is unlikely due to the actions of the Federal Reserve. However, they do acknowledge the potential for a market decline influenced by the weakness in global markets.

Q: Your take on RBI monetary policy decision?

There was no surprise that RBI’s decision to maintain the status quo in the repo rate. RBI has created the buffer for the uncertain monsoon, high inflation of food prices and global headwinds. And given the opportunities to business owners and entrepreneurs to increase the production and investments for both new & existing ventures. This move is breather for the retail borrower and it will boost further affordable and mid income housing segment.

The hawkish move of the RBI was the temporary increment of CRR at 10 percent that impacted the bank stocks and the Bank Nifty on the day. It indicates that RBI has approached towards adaptive liquidity policy and measures to ensure stability of the financial system.

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Q: Do you think one should start increasing exposure to new-age companies which are focussing on improving profitability?

In order to diversify one should have some exposure to the new-age companies. Although it is still early for them to settle, especially with respect to the expectations of investor community. The value proposition of these companies are derived a little differently. As the name suggests, they need new-age investors too. Whether the existing mechanism to analyse on both technical and fundamental grounds would work for these companies or not, only time will tell.

In short, profitability may or may not be the sole factor to build exposure here but as a tool to diversify, certain exposure is preferred. Although many of these have delivered some upside in the recent past, however, most of them are far from their IPO prices. Given this, if you consider yourself as a new-age investor then this is the space.

Q: Do you expect manufacturing segment to grow at a faster pace than key benchmarks in coming years? Which are the pockets you are betting big amongst them?

Given Government’s policies (to name a few production linked incentives, improvement on ease of doing business, implementation of GST etc) clubbed with Global sentiments especially the China Plus 1 movement, Indian manufacturing has been witnessing the benefits and is looking to grow stronger. PMI is consistently growing for the past 12 months and is currently highest among the emerging markets and this also suggests that manufacturing activity is strong.

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The growth estimates from the manufacturing boom are looking very very exciting, be it employment generation, contribution increase to GDP, becoming self-reliant; Aatma Nirbhar, impact on reduction of trade deficit and the list goes on. However, these projects need to be implemented faster and focus on bringing costs substantially lower, in order to be internationally competitive.

Further, the sector needs to lead the innovation drive, capture spaces which have global demand like semi-conductor, aerospace etc, increase scale to deliver at global levels.

In terms of specific sectors to pick, we are looking at areas or companies which are able to innovate and hence we are sector neutral here. We also need to evaluate the valuation of sub-sectors within manufacturing and need to pick accordingly.

Q: Do you see less possibility of a major correction in the market if the Fed gives confirmation over the rate hike cycle and reduction in volatility?

The Fed’s statements along with the policy announcement plays an equivalently vital role for markets to react and adjust themselves. The US inflation and job data need to be evaluated against the street estimates to derive probable outcomes.

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US inflation has fallen to 2.97 percent in June 2023, with the key Fed rate at 5.5 percent, the real interest rate becomes 2.5 percent, which is highest since 2018. Further, inflation can go up in the near term due to energy prices.

However, Fed looks to be in control of these parameters and hence things are suggesting a pause rather than hike in the next cycle. Nonetheless, investors will get a confirmation of a pause/rise after the next FOMC meeting only. On that rate cut, we believe it could begin from late 2023 or early 2024.

Due to higher interest rates in the US, the money market exposure there has doubled from $3 trillion to $6 trillion mainly due to attractive rates. Once the Fed cuts rates the money should start moving to other assets and this would support equity markets in the coming year.

If the Fed confirms the rate cycle, it will definitely reduce volatility and bring more stability. In any case, we don’t see a possibility of major correction happening locally due to this, we could witness a fall as an effect of weak global markets.

Q: Is it the right time to add exposure to pharma space?

The Indian pharma industry ranks 3rd globally in pharmaceutical production by volume. Overall the sector is expected to double its size in the next 5-6 years. Many Government’s policies including the PLI are benefiting the Pharma industry. Although the spending on R&D is increasing, we still have a long way to go.

From an investment standpoint, Pharma continues to be a defensive sector. We do suggest allocating to the pharma sector but within the asset allocation framework and not go overboard on it.

Q: Any thoughts on corporate earnings season? Have you seen more hits than misses and have you make significant changes in FY24-FY25 earnings estimates?

The one fact in long term investing is returns will eventually chase earnings. Presently, corporate earnings in India have been a bit weak. The slowdown in information technology and commodities, which constitute almost 40 percent of the overall index, is creating headwinds.

Having said this, the macroeconomic factors suggest that the earnings trajectory should be as per estimates or could be better. In short, we don’t see any major threat to earnings estimates. Although we have elections coming up next year, which could have an impact on 1 or 2 quarters, the markets would adjust themselves based on historical swings in earnings due to such events.

We believe that FY 24 – FY25 should deliver as expected as we don’t envisage any large uncertain events to unfold.

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.