Jitendra Gohil, chief investment strategist at Kotak Alternate Asset Managers, said they have been advising to book profits in auto and auto ancillary companies. "We believe the base is higher and in the next couple of years the growth rate may decelerate. After the staggering performance, the valuation has also shot up. Globally too the industry is facing overcapacity challenges," he reasoned.
However, he is positive capital market plays as he believes it is a structural story.
"Despite the run up and valuation expansion we are holding on to the stocks related to financialization of savings. We advise to buy these stocks on dips," said Gohil, who has around two decades of experience in equity strategy and business development.
Are you a buyer in the auto space, considering the significant correction in stocks following management commentaries?
We have been advising to book profits in auto and auto ancillary companies as we believe the base is higher and in the next couple of years the growth rate may decelerate. After the staggering performance, the valuation has also shot up. Globally too the industry is facing overcapacity challenges. However, within the Auto demand related sectors, we still remain constructive on the commercial vehicle (CV) financing space. We are also positive on rural demand recovery plays, such as tractors.
Is it better to add capital market plays to portfolio?
Yes, we are positive and we believe it is a structural story. Despite the run up and valuation expansion we are holding on to the stocks related to financialization of savings. We advise to buy these stocks on dips. India’s robust growth is moving people up the ladder as the technology and data connectivity improves. We believe opportunities in investment management and related business landscape is going to accelerate materially.
Do you expect 2025 to be a blockbuster year for the IPO market?
2024 has been a blockbuster year and continuation of that in 2025 will depend on several factors, if the stock market valuation remains elevated, the IPO market may continue this trend. There are several factors that we shall monitor that can impact India’s overall valuations, one of the biggest fears is rise of inflationary pressure especially if Mr. Donald Trump comes to power in the USA. His policies seems inflationary, if implemented. Secondly, how China stimulates its economy. If China successfully pulls out its economy from the impending slump, we may see the rate cutting bets might be pushed back. On the positive side we continue to believe the domestic flows should remain robust into equity market giving good exit opportunities for early risk-takers
Do you see overall earnings growth slowing down?
Macro parameters have been showing some signs of slowing down, and consumption revival is taking time. Nevertheless, we also have to consider sharp deceleration in government spending. The government has slowed down spending over the past few months due to elections, and the RBI has been very tight in managing liquidity. Both these parameters may turn supportive in coming quarters, in our view.
We think, the earnings cuts should be limited and probably should revive if the festive season and wedding demand and rabi crop output turns out to be good and government spending picks up going forward. Internationally, China has announced stimulus to support the economy. Already the steel import prices are now higher than domestic prices.
Secondly US economy has defied all expectations and growth has remained stronger than expected, thanks to fiscal expansion there. If inflation starts to pick up, we may see some re-stocking cycle to kick in.
Most major IT companies have released their September quarter earnings. What is your assessment of these earnings, and do you advise buying in this space now?
IT services companies' outlook is largely tied to BFSI spending in the US and Europe. While deal win momentum has been strong, revenue growth was slowing down but has started to pick up. Hiring activity suggests growth acceleration. Within the IT sector, Engineering and R&D segment outlook is weakening as clients scale back discretionary spending. However, given valuation concerns we recommend to book partial profits here and wait for a better entry opportunity.
Are you concerned that the monthly FII outflow has been the largest ever recorded in October?
India’s depth and breadth of equity market is much better now to absorb these humongous outflows. As the size of the economy grows, the domestic investment flows should also be sufficient to counter FPI selling. What is concerning from medium to longer term view is India’s geopolitical standing and assertion on the global political platform. The diplomatic fallout with Canada is a reminder how complex is geopolitical landscape is and it remains to be seen how well India manages the political challenges without attracting large sanctions from the west.
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