Kochhar is bullish on companies from the financials, retail, white goods, and cement space and select auto and commodity stocks
Mukul Kochhar, Co-Head Equities, Investec Capital Services, prefers two-wheeler players like Bajaj Auto and TVS Motor Company compared to Maruti Suzuki India. "While a cyclical bounce in volumes should be similar, we have more comfort on valuations and the competitive positioning of the leading two-wheeler manufacturers than Maruti," he stated.
Kochhar is bullish on companies from the financials, retail, white goods, and cement space and select auto and commodity stocks.Edited excerpts:
Q: What are your views on consumption and automobile companies that have seen some value buying coming due to the festive cheer?
A: Auto companies were beaten down and part of the rally is mere normalisation after a couple of years of poor performance. However, we have been fairly selective in this rally and are backing two-wheeler players like Bajaj Auto and TVS Motor compared to Maruti Suzuki India.
While a cyclical bounce in volumes should be similar, we have more comfort on valuations and the competitive positioning of the leading two-wheeler manufacturers than Maruti.
FMCG companies are interesting -- they are expensive, but been extremely resilient in their volume growth performance despite the ongoing economic slowdown.
So, the growth model has proven to be one of the most robust in the country, and the stock performance this year is reflective of that. However, this is more of a relative play, than a sector that can deliver absolute returns from here.Q: There are plenty of headwinds for Indian markets in terms of Brexit delay or trade war between the US and China. What are your views?
A: Brexit and US-China trade war are the two primary near-term issues that the global economy is grappling with. The economic cycle, especially in the US, being long in the tooth -- it has become the longest expansion in history -- is not helping either.
These factors are underpinning some caution in the market. Having said that, global monetary policy is increasingly accommodative, which makes earnings yield from stocks still attractive.
In a low rate environment, growth remains at a premium, which is the reason why you have seen a stronger performance from franchise growth compared to value stocks this year.Q: The Nifty is up about 10 percent from last Diwali. It has been a roller coaster ride for investors in the last one year. Can we say that testing times for investors are over at least for now or will the pain last for some more quarters?
A: Volatility in the Indian equity market has been reflective largely of the pain in the non-banking financial services space, which has impacted credit availability in the economy.
A market-driven solution to the problem will take time to resolve, and is currently the favoured position of this government. As a base case, we expect volatility to remain for the next few months as the market figures out solutions.
Since late last year we have maintained that the market remains investible as the current dislocation is providing enough winners to bet on.
If we take out 11 stocks from the Nifty, the market is trading below its 10-year average, implying that over-valuation is hardly a secular theme in India.Q: Which sectors can investors track for the next one-year?
A: Financials still remain a very attractive sector to track and invest in at current levels. The discretionary consumption space like retail, white goods and select autos is another space that we find very attractive. We also like the consolidation process ongoing in cement and select commodity stocks.
Q: What advice would you like to share with our readers with respect to portfolio management for Samvat 2076?
A: Accept that equity investment is risky and allocate only an amount that you can afford to take losses on. Once you have mentally set aside this amount, one can be more dispassionate in investing. Then, remember that every market dislocation produces winners, embrace volatility and invest in those winners.Q: Largecaps had a good run in Samvat 2075, do you think that Samvat 2076 could belong to the small & midcap space?
A: It is tough to time any investment, but valuation is in favour of investing in midcaps. While it may take longer than expected to make returns, investing at today’s prices in some of these beaten-down midcaps can be a profitable strategy.Q: Most high debt companies were also wealth destroyers from last Diwali. Where do you see the next pain emerging from in terms of sectors?A: Excessive leverage is almost always the leading cause of substantial permanent value destruction in any sector. Some of the leverage issues have not been resolved yet, and we would still stay away from investing in highly indebted companies. It is unlikely that most of these will make any meaningful comeback as they get into a debt trap.
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