In the quarter ended June FY24, "most sectors continue to see positive earnings momentum," Chirag Mehta, the Chief Investment Officer at Quantum Asset Management Company says in an interview to Moneycontrol.
He feels while credit growth would continue to be reasonable, banks could see a moderation in net interest margin (NIMs) due to an increase in cost of funds, while IT results are expected to be weak as environment continues to be challenging.
Quantum AMC has a reasonable overweight position on IT. "Given the global macro environment, growth could moderate in the near term. As the global economy settles, we could see a decent pick-up in growth," says Chirag with two decades of experience specializing in alternative investment strategies.
Q: Do you expect real opportunity in broader markets going forward?
The domestic economic environment and corporate profitability continue to be in a favourable cycle. GDP trajectory continues to progress steadily with infrastructure and capex also showing good growth. Bulk of the high frequency indicators indicate positive momentum be it PMI, GST collections, E-way bills and credit growth. There are also signs of easing inflation.
As the economic momentum gains pace, it is inevitable for corporate capex to pick up giving more legs to the current rally. Though valuations are hovering around long-term average, strong earnings growth can ensure reasonable returns over the next couple of years.
Q: Do you think investors, who missed the opportunity in current market rally, will get big investment opportunity in coming months?
Despite the recent rally, there are no major triggers for a material correction in the near term. Investors might have to enter at more expensive levels if the pace of economic growth surprise on the positive side. It is advisable that investors start investing in a staggered manner to benefit from the current cycle.
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Q: What could be the biggest headwind for India going forward?
Risks of a deep recession in the US will weigh on export and capex outlooks, thereby delaying the virtuous growth cycle. Risks from global financial conditions tightening could also weigh on the growth outlook.
On the domestic front, monsoons are a key variable to monitor given their impact on domestic inflation as well as rural demand. Markets could also get nervous in the run-up to the 2024 elections.
Q: Do you expect June FY24 quarter earnings to be better than Q4FY23?
From a macro standpoint, economy continues to benefit from fundamentally stronger balance sheet positions of the private sector and the government’s supply-side focused policy measures reinvigorating capex. Domestic demand indicators continuing to exhibit broad-based recovery. PMIs have been above the 50-mark since July 2021. Rural economy too has shown some signs of improvement.
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In addition, India is seeing a sharp cool off in inflation. Most sectors continue to see positive earnings momentum. While credit growth would continue to be reasonable, banks could see a moderation in NIMs due to an increase in cost of funds. IT results are expected to be weak as environment continues to be challenging. Barring few sectors, earnings are expected to see a positive momentum.
Q: Are you gradually increasing exposure to IT space?
We have a reasonable overweight position on IT. Given the global macro environment, growth could moderate in the near term. If the global economic environment worsens, we can see a pickup in IT outsourcing deals aimed at cost optimisation. As the global economy settles, we could see a decent pick-up in growth.
Q: How relevant is the ESG assessment before making an equity investment?
ESG (environmental, social, and governance) assessment is becoming increasingly important as a way to mitigate many risks that companies face from the unfolding global challenges. Companies that are able to decarbonise, efficiently utilise resources, promote diversity and equality and are well governed will be able mitigate risks from regulations and adapt to fast changing consumer and stakeholder preferences, and thereby will be able to do well and attract investor attention.
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Also, it's not only about risks, but also about the opportunities. Drive towards sustainability brings in great opportunities for businesses - from becoming efficient to diversifying into newer businesses that would help drive decarbonisation and resource efficiency. ESG has become a new mark of the quality of the business and hence its integration in equity investing helps identify long term sustainable businesses.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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