In the ongoing quarterly earnings season, "most encouraging factor has been the sign of uptick in capex cycle," Dikshit Mittal, Fund Manager & Senior Equity Research Analyst, LIC Mutual Fund Asset Management said in an interview to Moneycontrol.
Looking at results of most of Industrial companies, they have been sitting on robust orderbooks, which gives good visibility of earnings, he believes.
Also, many companies especially in consumer space have called out bottom of margin compression, so he expects to see margin uptick in 1HFY24.
Dikshit Mittal with around 16 years of experience in research and fund management says LIC MF is bullish on financials, Industrials, consumer discretionary, and export oriented sectors like chemicals.
Q: Your take on the ongoing corporate earnings season?
On an aggregate basis, earnings season has been more or less in line with market expectations. However, there has been wide divergence across sectors. While sectors like BFSI, auto, oil and industrials have reported good numbers, IT, FMCG and consumer discretionary earnings have been subdued.
BFSI, especially lenders have been standout performer, with most banks reporting margin expansion and further improvement in asset quality.
Q: What is the most encouraging factor in the March quarter earnings and management commentary?
Most encouraging factor in the quarter gone by has been the sign of uptick in capex cycle. Looking at results of most of Industrial companies, they have been sitting on robust orderbooks, which gives good visibility of earnings.
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In addition, banks have shown remarkable improvement in balance sheets, and most of large banks are now ready to fund the next leg of growth without worrying about any NPA issues.
Also, many companies especially in consumer space have called out bottom of margin compression, and we expect to see margin uptick in 1HFY24.
Q: Have you spotted any concerns in the earnings season and commentary?
One major concern has been lack of visibility on demand recovery especially on consumer side. IT sector has also expressed some concern on near term demand visibility due to turmoil in global baking sector and postponement of discretionary IT spends.
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Q: Do you expect a strong earnings outlook for auto and auto ancillary space for the next 2-3 years?
Auto sector is cyclical in nature and is expected to be a mixed bag. While PV (passenger vehicle) segment has crossed pre-covid peak and doing well, 2 wheeler- especially below 110cc category is still reeling under slowdown. In addition, due to geopolitical issues, 2-wheeler exports are also suffering.
CV (commercial vehicle) again is cyclical in nature, which for the time being seems in upturn. However, its difficult call to take 2-3 year view in CV.
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Q: Do you see the Reserve Bank of India changing its policy stance in the June meeting?
RBI has paused in last policy meeting, and our understanding is that RBI remains data dependent, and will take a call based on growth and inflation data. That being said, interest rates seem to have already peaked.
Q: Your take on the staples and QSR segments? Also what is your preference amongst them?
Both staples and QSR (quick service restaurant) segments are witnessing demand weakness due to high inflation. We expect this weakness to be transitory, and hopefully in 2HFY24 as festive season picks up, demand is expected to come back.
In the near term, though volume growth may remain subdued, margin recovery is expected to support the earnings.
On a slightly longer term basis, both these sectors are expected to do well. QSR is highly under penetrated in our country hence offers long runway for growth. In staples, premiumisation is expected to be key driver going forward.
Q: Which are the preferred bets for FY24?
We are bullish on financials, Industrials, consumer discretionary, and export oriented sectors like chemicals.
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