In an interview with Moneycontrol, Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, highlights the significance of Q1FY24 in shaping the entire year for the IT space. He emphasizes that the sector should not be overlooked from a long-term perspective, as it has consistently generated substantial shareholder value.
He believes the consumer sector can potentially surprise positively in Q1FY24 as margins could be better than expectations.
Finding good ideas has become a little more difficult after the recent market rally. However, themes like manufacturing, discretionary consumption and BFSI's growth remain strong, says Naveen with more than 15 years of experience in the research and advisory segments.
Q: Do you see major consolidation in the market after rising another 3-4 percent from here on, or is it gradually looking expensive?
We do not anticipate a significant consolidation in the market unless there is an entirely unexpected major event. Equity markets are not cheap as they were about 3 to 4 months back, but they are also not very expensive.
On a PE basis, NIFTY is about one standard deviation above the long-term mean, which is acceptable. On a Price-to-Book (P/B) basis, it is slightly above the long-term norm.
The economic growth forecast continues to be encouraging. Thus, considering these multiple aspects, some equity market corrections will be healthy, but we do not envisage a significant consolidation move.
Q: Do you expect the rally to continue in midcap and smallcap for another couple of quarters?
It is possible for the small and mid-caps to deliver good returns even from the current levels. However, the focus on small and mid-cap space will be on quality to generate sustainable returns, as during challenging times, liquidity dries up in the space, and corrections can be severe.
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Q: Do you soon find it difficult to get good ideas at reasonable valuations, considering the last few months' rallies?
Finding good ideas has become a little more difficult after the recent market rally. However, themes like manufacturing, discretionary consumption and BFSI's growth remain strong.
Q: Are you advising clients to take exposure to the life insurance segment?
Life insurance is a good space to be invested in for the long term, but our focus will be very stock specific as there are other regulatory challenges.
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SBI Life Insurance continues to deliver strong growth and remains our preferred pick in the life insurance segment.
Q: Do you see more earnings upgrades than downgrades in the June FY24 quarter?
There is a possibility of upgrades in the June FY24 quarter as raw material prices have decreased significantly. Thus, margins can surprise positively for Q1FY24, which can lead to earnings upgrades.
Q: Sectors that may surprise with earnings in Q1FY24?
Consumer sector can potentially surprise positively in Q1FY24 as margins could be better than expectations. A wide range of raw material prices are down even compared to Q4FY23. Thus margins are not just expected to improve on a YoY basis but also QoQ basis. Hence, we can expect some positive surprises.
Q: One sector that can't be ignored at this point in time for investment?
IT sector valuations have corrected significantly. Q4FY23 was a weak quarter for large IT companies, but mid-size IT companies still delivered healthy growth. Q1FY24 will set the tone for the entire year. Thus, the IT sector cannot be ignored on a long-term basis as it has created immense shareholder value in the long term.
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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