"Small finance banks have seen a dream run in the last one year. The fundamentals are strong but the valuations seem far-fetched at the moment," Divam Sharma- Founder and Fund Manager at Green Portfolio PMS says in an interview to Moneycontrol.
On the portfolio level, Green Portfolio is underweight in the banking sector at the moment.
On the FII outflow, Divam with over 15 years of experience in investment management in stock markets says the market uncertainty is making investors shift away from risky assets. The Fed’s hawkish stance has made it clear that interest rates are going to remain high for the near term, weakening the rupee further, he adds.
Q: What do you make out of provisional quarterly numbers announced by several companies?
Accenture is considered a benchmark for the IT index. Their guidance for FY24 remains flat at 2-5 percent. Book deals have fallen by almost 10 percent. Hence, demand for IT services is squeezing given the high interest rate cycle. Though the top-tier firms have been announcing large deal wins over the past few weeks, due to the high time frame, we do not expect any major change in the guidance.
Only banks have released their provisional numbers and as expected with high net interest margins, the BFSI sector is on a healthy growth trajectory with loan book growth.
Also read: Post delayed monsoon, dull rural demand, can festive season bring cheer for FMCG stocks?
On the other hand, when it comes to chemicals and pharma, we are expecting continued stiffness in the results as the export demand has weakened and as a result, their capacity utilisation continues to run at low levels.
Q: Do you see a possibility of earnings downgrade in many sectors after the September quarter earnings season?
BFSI’s have had a dream run thanks to expanding net interest margins, as the tide turns, we could expect company-specific downgrades in this sector.
For companies involved in manufacturing, as export demand picks up, we could expect margin expansion and robust capacity utilisation levels, which may be visible in the second half of this financial year.
Also read: Oyo talking to Apollo for $660 million refinance as IPO delayed
Muted results from Infra companies as Q2 is generally slow for these companies owing to monsoons, halting construction activities.
Infosys, HCL and TCS are going to release their results in the second week of October. Accenture’s recent result release is bleak. The sector has been under pressure and we don't expect any major changes in guidance.
Q: Do you think the RBI would maintain its hawkish view for the rest of the financial year?
Expectations are that RBI would keep the rates steady at 6.5 percent. But in case it increases, it would be a 25 basis hike given the US treasury yield is rising.
Brent crude crossed the $95 mark last week. India is an oil-importing country and ever-increasing prices of Brent Crude plus discount cuts on Russian cheap oil can further trigger inflation if prices were to increase past the $105 mark.
Also read: Why PSU bank stocks fell while private sector banks rose today?
Q: Do you expect any slowdown in the US after reading several economic data points?
US economy GDP increased roughly by 2.2 percent in the first two quarters of 2023 which is negligible. After locking in the inflation rate of 2.97 percent in June, it escalated to 3.67 percent in August, taking FED away from reaching the inflation target of 2 percent.
There is already a slowdown in the US. Personal consumption spending was reported lowest in 2 years and unemployment numbers are flat at 3.8 percent.
The housing market is another factor because real estate has a domino effect on the economy impacting the infra, cement, and steel sectors. Mortgage rates in the US have hit 21 years high, hurting the housing market and economy further.
Q: Do you see a major risk for the equity markets given the spike in US 10-year treasury yields?
US treasury yields are at 4.75 percent. The spike in interest rates will further lure investors into investing in debt instruments, triggering them to pull money out of equity markets.
Also read: Bajaj Finance to raise Rs 10,000 crore via QIP, preferential issue
It poses a challenge to corporations as well because the escalated cost of borrowing might dampen their growth plans.
Indian markets- The Fed’s hawkish stance has made it clear that interest rates are going to remain high for the near term, weakening the rupee further. Market uncertainty is making investors shift away from risky assets.
FIIs are on a continuous selling spree. The buying DII activity might not be enough to neutralize the net FII selling effect.
Q: Do you see value in small finance banks and microfinance institutions?
Small finance banks have seen a dream run in the last one year. The fundamentals are strong but the valuations seem far-fetched at the moment. On the portfolio level, we are underweight in the banking sector at the moment.
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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
