Since the economy is expected to grow at a healthy pace over the next few years and lift household balance sheets, Anil Rego, Founder and Fund Manager at Right Horizons PMS, believes consumer spending will rise, benefiting the consumer discretionary sector.
After the March quarter results, Rego remains positive on BFSI given its healthy growth outlook and earnings trajectory, with return ratios expected to remain healthy.
Deposit growth remains a key monitorable, and due to increased scrutiny by the regulators, effective management of compliance is also being watched, the Right Horizons founder, who has over three decades of experience, told Moneycontrol in an interview.
Edited excerpts follow:
Do you think organised retail is a great investment opportunity at this point in time?
India’s GDP per capita is on the rise and discretionary spending is increasing. Additionally, we are observing a preference for luxury items. Since the economy is expected to grow at a healthy pace over the next few years, boosting household balance sheets, we believe consumer spending will increase, benefiting the consumer discretionary sector.
What do you make of the latest Federal Reserve commentary? Have you lowered your fed rate cut expectations for 2024?
Following a rapid increase of 5.25 percentage points in the policy rate since March 2022 in response to mounting inflationary pressures, the US central bank has kept the policy rate unchanged since July 2023. The signals reflected a broader shift toward holding borrowing costs for longer, so we expect rate cuts to be delayed.
Are you superbullish on the banking and financial space, especially after the March quarter earnings?
The banking space is witnessing robust credit growth momentum driven by continued traction in the Retail and SME segments. While the SME segment is maintaining its consistent growth, the real estate industry is witnessing robust expansion, buoyed by favourable market conditions.
We remain positive on BFSI given its healthy growth outlook and earnings trajectory, with return ratios expected to remain healthy. NIM (net interest margin) continued to moderate from the peak due to the higher cost of funds. However, with deposit growth gaining traction, the compression in NIM is likely to moderate. Additionally, lower bounce rates and a healthy credit ratio point towards favourable asset quality. Deposit growth remains a key monitorable, and due to increased scrutiny by the regulators, effective management of compliance is also being watched.
Which sectors do you see as a dark horse?
The uncertain global macro outlook continues to dampen demand for the IT services industry in Q4FY24. Due to the ongoing challenges in key verticals and anticipated pressure on fourth-quarter execution, IT services companies have either tightened their revenue guidance range or anticipate achieving results at the lower end of the spectrum.
Throughout the third quarter, persistent weakness was observed in key geographies and verticals, notably with the BFSI, Consumer, and Communications sectors reporting subdued growth. The topline of Tier-I companies is expected to improve sequentially on account of the low base. However, it is likely to remain below the historical range. We expect reasonable growth in Tier-II companies aided by strong deal momentum.
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