"The exposure to Adani group companies is not reflecting a systemic challenge. There are tangible assets backing the loans. We do not see any significant risk to the banking sector as of now," Divam Sharma, Founder of Green Portfolio told Moneycontrol in an interview.
Recent news around Adani promoters prepaying loans to revoke the pledge is a positive, he feels.
Sharma, who has over 13 years of experience in investment management in stock markets, continues to believe that PLI (production linked incentive) related sectors and related companies will come out as winners of this decade. Edited excerpts:
Do you think the buying opportunity has emerged in Adani Group stocks after severe correction?
Some of the group companies have turned really lucrative on valuations front. We have invested in some of these companies in the past and exited at commendable profits.
We although believe that the volatility in the stocks will continue for some more time as the timeline of events around the group evolve. Exposure should be restricted and staggered despite the opportunity that the correction is presenting.
What is your call on the corporate earnings announced so far? Have you observed anything surprising in corporate earnings season?
We have seen many of our portfolio companies seeing a margins impact, despite the rise in topline. Most of our companies have been able to pass on the inflation to end customers with a three-month lag, but margins have come under pressure as expected. This has primarily been because of rise in input prices due to forex fluctuations, supply chain constraints and rise in prices of some commodities.
Are you worried about banking and financial services space after turmoil in Adani Group stocks?
The exposure to Adani group companies is not reflecting a systemic challenge. There are tangible assets backing the loans. We do not see any significant risk to the banking sector as of now. Recent news around Adani promoters prepaying loans to revoke the pledge is a positive.
Also read: Adani Group fiasco | Five lenders and their exposure to crisis-ridden conglomerate
Do you expect the metal stocks to rally given the re-opening in Chinese economy?
Chinese economy re-opening should definitely be a trigger for the metal stocks. However, there should be further thrust coming from reversal in interest rates and higher demand coming from higher capex spend.
What are your expectations from the Monetary Policy Committee on February 8 and the commentary by RBI Governor Shaktikanta Das?
We expect that the RBI should follow the footsteps of Fed of going for a lower rate hike of 25 basis points. The Governor has pointed out that the inflation is here to stay for long and inflation expectation should be anchored over the medium term. Commentary around policy action will be closely watched by markets.
The headline inflation has come at below 6 percent for two consecutive months now and the same is expected to be below 5 percent by March 2023.
If RBI hits a pause button, the markets will rally. The markets are awaiting their next spark as the Budget announcement fizzled out thanks to the recent short seller report and associated events.
Which are the three sectors/themes that you think investors should have in portfolio after budget and earnings season?
Pharma is a core strength of India, where we lead globally in vaccine production and generic medicines having over 20 percent market share. Outside the US, India has most US FDA compliant factories. Over the past 2 years, the sector has shown correction and the valuations have come to a really comfortable zone.
Infrastructure and Capital Goods will benefit from a higher thrust on public and private capex.
We continue to believe that PLI related sectors and related companies will come out as winners of this decade. India is increasing its stakes for being a manufacturing hub and if you zoom out a little and look at developments around Capex growth, China plus one, FTA’s and related trade discussions that India is concluding, you drive more comfort around the theme.
Do you expect the Nifty IT stocks give rise sharply in second half of current calendar year?
The outlook is still pessimistic. Recession in large economies, liquidity being pumped out of the system will weigh on outlook for order book.
Job growth and hiring intent in the sector have also shown a significant decline, reflecting the sentiments.
It would be a while until IT’s emerge as market favourites once again.
US Interest rates reversing should be a trigger for the sector. We believe that this should come at the end of the year.
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