Across the broader economy, there seems to be some early signs of earnings growth coming back and if that sustains, then the rally is going to be a lot stronger this time, said Tushar Pradhan, CIO of HSBC Global Asset Management.
Talking about the rally seen in midcaps, he said, “Valuations were quite attractive especially in the smallcap area. Midcaps were always a bit better in terms of quality of earnings, as well as valuations. In terms of broader base, we are getting a sense that there has been a pick up and it’s visible."
However, it would be important to watch whether year on year (YoY) it translates into real growth in FY21 and going forward as well,” said Pradhan, adding, “If you get any sign, and probably the budget might be some indicator of sentiment and if something dramatic happens from an economic perspective - if all of that happens then we are set for a significant period of economic expansion."
Sector specific, talking about private sector banks, Pradhan said, “Volume of earnings which sustained throughout this year, will continue for them. There is always rotation in terms of where earnings growth comes from and this year about 90 percent of entire earnings growth for Nifty is coming from financial sector, which include banks as well.”
“For the moment, banks are in a healthy place and valuations reflect that health, so there is relative opportunity. There are companies without the earnings, especially in banking that trade at a significant premium to some companies which are sustaining significant earnings growth and they are reasonably valued. There is a lot to discover here. It is not a usual scenario where you see earnings and prices but there is hidden value that may get uncovered in the next few quarters or so,” Pradhan added.
Globally, he said, “Developed markets are facing significant headwinds in terms of growth and sustainability. We are going in for major elections in some of the developed markets and that could also be a headwind.”
So, the focus is clearly turning towards emerging markets and within that India continues to attract attention for various reasons - though not the traditional reason of high GDP growth rate, it is more a safe haven amongst the exporting countries which are likely to face some challenges going forward. "So, the domestic nature of our economy, the significant drop in inflation and benign interest rates leading to a stable currency is attractive from global investor’s perspective. There is some pretty good tailwind for us going in the next few quarters,” mentioned Pradhan.
Speaking about sectors, he said, “I am not writing off autos yet. It is going to be a long cycle before we try to see consumer demand come back with strength.”
According to him, realty will do well when inventory comes down and there is no extra supply.
Source: CNBC-TV18
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