Santosh Joseph, CEO and founder, Refolio Investments and Germinate Investor Services LLP, is optimistic about the earnings season that begins later this week.
The business updates are in line with market expectations despite valuation worries after the recent rally, Joseph has said.
The financial services professional with over 20 years of experience expects banking and insurance, PSU, capital goods and manufacturing sectors to do well in 2024.
He is also bullish on the power sector and tells Moneycontrol in an interview that “it is a golden period” for the segment as India focuses on manufacturing. Edited excerpts:
Many experts foresee multiple headwinds and don't expect a double-digit rally in the market in 2024. Do you agree?
One looks at 2024 optimistically and when you look at optimistically in general and in equity markets, a double-digit rally in the equity markets is just one of them. For markets to generate a double-digit rally, one would expect many things to fall in place, which is a continued earnings momentum and maybe, even a pickup in the earnings in some of the other sectors.
One would also hope that to some level that the whole economy is able to move on from high rates and to some level the rates will cool off. The cooling off of rates will give a lot of boost to many economies. In fact, many company earnings will dramatically increase and upgrade based on a softer interest rate regime. While we do have some major headwinds from global geopolitical uncertainties, wars happening in many parts of the world and even getting into an election year, things are quite evenly poised.
One has a lot of optimism to look forward to along with headwinds. It's not just one thing — either headwinds or tailwinds. It’s equally poised and the market is a great leveller and the market also always discounts or anticipates the future.
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Thus there is no harm in optimistically and realistically expecting the market to again give a double-digit return in the calendar year 2024. Just because 2023 turned out to be good doesn’t mean 2024 should necessarily be bad. 2024 could also turn out to be a decent year.
What is the best strategy for a bull market — stick to one sector or keep shuffling between sectors?
The best thing to do in a bull market is to stick to sectors that you feel have the maximum potential for further upside. In a bull market, most sectors will be performing and there is a tendency to get carried away with sectors that have the maximum momentum. While that is a strategy that some people like to follow especially in a broad based bull market, I think what is advisable is to be in sectors, stocks and funds that you are comfortable in and which also have the potential.
In a bull market, if you feel your sectors and your stocks or funds are not performing, it gives you an opportunity to realign your portfolio. But otherwise it's always better to stick to your investment thesis first and then let the bull market or the lack thereof to play out.
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Which are the sectors to participate in 2024?
If one is expecting a rally in 2024, one will definitely see massive contributions by largecaps. Within the broader market, if one is to look at the entire BFSI segment, here is where you have great potential for a couple of levers to work in. There is a great amount of earnings in this segment. Secondly, a softer interest rate regime will also benefit the entire financial services industry.
It is also important to know it is not only BFSI, you also have within the BFSI the whole PSU segment doing really well in 2023 and they look even good for 2024.
Likewise, you have also seen a lot of breakout in the PSU manufacturing and industrial capital goods side that has got more legs to run and not to forget that the pharma side, IT side- both do have a lot of opportunities considering 2022 and 2023 they have bottomed out or consolidated.
So I think one is expecting a good year in 2024, financial services, PSU, capital goods and manufacturing will be very interesting and dominant themes in 2024.
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Do you think it is a golden period for power sector?
It is. Since India is focusing on manufacturing and we’re anyway deficit of power, so therefore the power sector doing well is quite natural in an environment where there is a lot of government and private sector activity on the manufacturing side. Power has been one sector for long where either we have been under invested or not much attention is being paid to.
Now there is a significant amount of attention and interest in that space. So, the power sector could be really a great contributor to the growth of the overall economy and you’ve seen it in developing economies too. Whenever an economy moves from underdeveloped to developing economy, the entire power consumption generation as a sector plays a very important role.
Also read: Ahead of Budget: Which sectors will be at forefront in January?
Are you comfortable buying FMCG stocks now?
FMCG stocks in general have been at the higher end of the valuation range. But it is so because of the certainty of the earnings that these sectors bring to the table and in many cases, are a core part of the economic activity. So, therefore, though they are on the higher side, there is a huge reason to believe that this consumption, especially through the FMCG side, could further grow.
As India grows and more urbanisation happens and purchasing power grows, FMCG will see a lot of benefits and that is why this has been one sector that has been growing well at a premium in terms of valuations. And, I think at some level, when the base itself changes, the premiums will get justified or there will be further growth at higher valuations.
What do you make of the provisional numbers announced by corporates ahead of the December quarter earnings?
Most of the provisional numbers announced for the December quarter are all indicating a positive trend as far as earnings are concerned. When the markets were running up during the second half of 2023, many were worried about the valuations but what is interesting to know is that earnings are also in line with how the markets are reacting to the news.
The provisional numbers are good and when the Q4 numbers come after March, you will see further validation of these provisional numbers. By and large, across the last couple of quarters, the numbers have been very encouraging and I think the provisional numbers and the actual numbers should actually align and we should see good earnings growth which is what the market is betting on and even discounting going forward.
What are the reasons that could delay interest rate cuts by central banks, especially the US Federal Reserve?
Some of the key risks that central bankers around the world, particularly the Federal Reserve, would watch out for are how inflation and some very key economic indicators play out. They do not want to jump or be in a hurry to cut rates.
Therefore, right now, you have a pause scenario playing out. As we speak, across the world there are a lot of geopolitical tensions. From West Asia or the Middle East crisis or some part of the Asian side, conflicts are simmering and some of these things can get out of control.
While we expect the Federal Reserve and central banks across the world to start on their rate-cut journey, some of these could be delayed because of the developments globally from geopolitical tensions or some unknown factors.
Do you expect income-tax benefits in the interim budget?
I don't expect much on income-tax benefits in the interim budget. This year’s budget is essentially going to be a vote-on-account and the election might not result in a big bang announcement and not much on the income tax, at least at this juncture.
One has to wait for the elections to get over and then understand how a new budget is made and what the anticipation and expectations could be and then what is the plan from the finance ministry.
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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