Seshadri Sen, head of research & strategist, Emkay Global Financial Services, expects small and midcap stocks to continue to do better than the laregcaps in 2024 as well.
The manufacturing sector is expected to outperform services but the segment that Seshadri, with over 30 years of experience in equity research, is bullish over is the green transition.
The theme will be a strong investment opportunity over the next 10 years across power, equipment manufacturing, electric vehicle manufacturers and other such businesses, he tells Moneycontrol in an interview. Edited excerpts:
Do you expect a dramatic to change in market trend in 2024 after a strong run in the previous year?
We expect Nifty returns to be muted in 2024 ( around 10 percent), although the broader trend should remain the same. We see manufacturing outperforming services and SMIDs (small and midcaps) continuing to do better than the largecaps.
Is the market pricing in earnings growth and more interest rate cuts than signalled by the US Federal Reserve?
The Fed rate cut is only partially priced in, in our view, as valuations of growth stocks are still not over the top. In the short term, a strong earnings momentum has been priced in and we expect a relatively quiet period for the markets in Q1CY24.
The long-term earnings growth outlook for India should start to get priced in once we enter FY25, after the FY25 full budget, expected in July, gives us greater visibility on the 3 to 5-year economic outlook.
Also read: CLSA downgrades Zee to 'sell' as Sony calls off merger; expects valuation to slump
How do you view the global green transition theme? Are you playing it through main players or via ancillary stocks?
Yes, this is a very strong investment theme over the next 10 years. The opportunities exist across the board — power companies, equipment manufacturers, EV manufacturers, component suppliers, and so on.
Which are the other themes on your radar for the current calendar year?
We believe that rate cuts and reforms will be the key themes for CY24. The rate cuts are best played through growth stocks and we see manufacturing and SMIDs as key beneficiaries.
Reforms are best played through capital goods and infrastructure. We also see the possibility of a recovery in rural/mass spending and recommend some exposure to consumer companies to play this.
Also read: Tata Motors to commence EV production at Sanand plant from April
Do you expect the government to increase capital expenditure in the interim budget ahead of general elections?
We think continued capex will be a key theme for FY25 and onwards. The main budget (in July) is likely to focus on further shifting government spending away from consumption to capex. This should help give a further fillip to private capex, too.
Do you see more announcements in the interim budget to boost the rural demand?
There may be some short-term boost to rural consumption before the elections. This is not likely to be sizeable though. However, the election itself acts as a mini-stimulus to the rural economy.
Do you think the foreign investors, who come with FDIs, will wait till general elections?
FDI investment decisions have long decision-making lead times. It is difficult to time them beyond a point. The elections may play a role but not a very big one.
What is your reading of the corporate earnings, so far, and of management commentaries?
The results have largely been strong except for some individual companies that have missed the analyst estimates. We think this will be a strong earnings season, with some recovery in margins.
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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