Broad industrial consumption trends are holding up, says Sandeep Bhatia of Macquarie Group

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The worst of the commodity price spike the world experienced in the first six months of 2022 is behind us, says Sandeep Bhatia, the Head of Equity and Country Head-India at Macquarie Group.

Prices of oil and other commodities had surged in the lead-up to and the aftermath of Russia’s invasion of Ukraine in February, but have since eased.

In an interview with CNBC-TV18, Bhatia shared his views on the current market rally and spoke about the Information Technology (IT) sector, future of electric vehicles and the scope offered by the country’s defence sector.

The National Stock Exchange (NSE) benchmark Nifty50 on Tuesday closed above the psychological level of 18,000 points. "Diwali has come a month early in the markets," Bhatia said.

He added: "We’ll probably go into the third quarter of this financial year or fourth quarter of this current year quite strong. The market has legs to it."

The only disappointment, according to Bhatia, has been a "sort of weak monsoon".

Moving on, he spoke about broader industrial consumption trends which "are still holding up." He expects the market to rise by another 8-10 percent in the next three to four months.

According to him, in the first quarter of next year, with the budget around the corner, there is a possibility of investors booking profits.

"We like the IT sector. We like HCL Tech, TCS, Infosys, so we definitely like that. Our call here is that we’ll continue to see decent earnings growth -- 10 to 12 percent earnings growth," Bhatia said.

Given negativity around the IT sector because of expectations of a recession in the US and European Union, Bhatia said "we are seeing a lot of pushback."

He added: "US will not have as big and as deep a recession as we have seen in the previous cycle. So to that extent, the IT sector offers very good value at current levels."

Apart from US recession concerns, there exist worries over large companies such as Infosys and HCL Technologies, which are seeing margins at multi-quarter lows for the past 10-12 quarters.

Bhatia said there could be some negative news flow from the US, but even so India was not witnessing the kind of big layoffs that 2008 saw.

"I don’t think that the economy at least in the US will take such a big hit. I think the real challenge will be in Europe, not as much in US. At least on the entire balance between valuations, earnings, and growth, the IT sector stands out."

In the automobile industry, companies like Mahindra & Mahindra are making big investments in manufacturing Electric Vehicles (EVs). They are investing Rs 9,000-10,000 crore over the next couple of years in EVs.

Bhatia said the automobile industry and the EV space was worth looking at.

He added: "I would still go with the large players, which are essentially Maruti, Tata Motors and Mahindra. Mahindra is being a standout because its product cycle has surprised both in terms of consumer response and the fact that the slew of products that have been launched have clearly upped the game in terms of product quality that M&M used to come out with."

He picked Mahindra as the "dark horse" in the auto sector.

Bhatia expects Tata Motors and Mahindra to dominate the EV market over the next couple of years.

The defence sector is difficult to predict because it's lumpy and largely "project and government-policy based," Bhatia said.

Structurally, the sector is headed in the direction of Make in India and on the defence front, some major platforms will see Indian corporate sectors come in and start contributing.

"Although if you want to look at it given the entire cycle of defence purchases in India, these will take five plus years if not more," he observed.

While it's worth keeping an eye on, "I don't think you can deploy big sums of money or build any kind of big earnings projections which can be valid and credible in next 2-3 years," Bhatia said.