Daily Voice: Auto space fairly valued, yet this market veteran is bullish on private banks, FMCG stocks

In my last interview with you on January 24, 2024 where I said that there is a bubble in 70 percent midcap and smallcap stocks which now seems to be busted. The Nifty Smallcap and Microcap indices are down by 8 percent to 12 percent from their peak while most of the stocks are down anywhere between 10 percent to 50 percent in the last 2 months.

However, after this brutal correction in Smallcap and Microcap I see some value in very few Small and Microcap stocks which have a potential to give 100 percent return in the next one year.

Which are the sectors/stocks that one should definitely buy in the ongoing correction, across caps?

At this moment of time, I see great value in private sector banks along with very few PSU banks and FMCG stocks. I am buying these three themes from a medium-to-long-term perspective.

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Also, after the recent correction in the broader markets even some of the midcap and smallcap stocks have become attractive. Also in contrast to the Global Fund Managers I am taking a contrarian view on the Chinese and Hong Kong stock market. Hence, I am buying their ETFs listed on Indian bourses.

Do you prefer banks over NBFCs now?

At this moment of time, I will prefer to invest in both banks and NBFC compared to IT sectors. In my view both banks and NBFCs are trading at very attractive valuations, while the IT sector looks overvalued at current prices.

Also within NBFCs, I will prefer housing finance companies compared to micro finance companies at current levels. In banking space, I will give 50 percent weight to private sector banks and rest of the weightage to two or three selected PSU banks.

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Is it better to bet on two-wheeler and auto ancillaries space over commercial and passenger vehicles space?

Frankly speaking at this moment of time, the entire automobile space looks fairly valued and in comparison with it I see the sectors like banking and FMCG to be little undervalued compared to the entire automobile sector.

Hence, I will avoid this sector at this moment of time. However, if it is compulsory for me to choose between either a commercial or passenger vehicle space then I will choose Maruti Suzuki India over Tata Motors.

Do you still see a lot of structural challenges for China and the growth may not be the way it used to?

Yes, there are very high chances that China's growth may slow down for some time till they have better relationships with the western world. However, in my personal view, China and Western World are almost at the rock bottom of their relationship. From here there are very high chances that these relationships either will improve or may create a World War-III situation depending on how each side would react to each other at different points of time.

Being optimistic I will always respect these relationships to nurture further in a positive direction and create a better economic environment across the world. However, from a stock market perspective, I believe the technology sector of Hang Seng is at mouth watering valuations. Hence, I'm buying stocks in the IT sectors of Hang Seng stock market.

Should one wait for general elections results before making bets on markets? Further, do you think we are nowhere near a bubble territory?

As I shared in my last interview, the broader market was in bubble territory due to some of the global liquidity factors and expected pre-election Indian stock market rally.

But now after this brutal correction in smallcap and microcap stocks, there are some great opportunities which investors should not miss at current levels. There are very high chances that post the election these stocks may not be available at such compelling valuations.

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