The Reserve Bank of India (RBI) is likely to maintain status quo on interest rates in its forthcoming monetary policy review meet this week, Gaurav Dua, Head – Capital Market Strategy at Sharekhan by BNP Paribas says in an interview to Moneycontrol.
Though the input cost pressures are easing out and retail inflation has also moderated to sub 5 percent level, the possibility of weak monsoons and global uncertainties could prompt RBI to retain its wait & watch approach as of now, he adds.
With over 20 years of work experience in equity research, asset management and investment strategy, Gaurav advised limiting exposure to global commodities like metals and energy sectors due to the global uncertainties.
Also, some of the export-oriented sectors are facing demand challenges and could be laggards in the near term, he said.
Q: Should investors start focussing on sectors that have seen earnings upgrade after March quarter results?
It is true that the sectors witnessing earning downgrades tend to underperform. On the other hand, there is a higher probability of outperformance in stocks that have seen upgrade in earnings estimates.
However, the markets are much more complex. Investors also need to consider valuations and understand of the upgrades/downgrades are already factored in the share price.
Q: Are you super bullish on green energy theme?
Renewable energy has a structural growth outlook. However, this does not mean that an investor can buy renewable energy stocks at any price. Sometimes, the street expectations tend to run ahead of themselves and a lot of optimism gets built into share prices before the action number unfold.
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Lastly, like seen in the past, many new entrants jump into a growing industry but all do not prosper or even survive. So it is always better to stay objective and careful in selecting the investment opportunity.
Q: Do you think the consumer staples still face high valuation concerns?
Most of the leading consumer staples have always commanded premium valuations. And rightly so, some of these companies have very strong brands and are undisputed category leaders along with healthy cash flows and return ratios to support the premium valuation.
But if the valuations are not supported by adequate growth in business and earnings the stocks tend to underperform. Given the concerns of slowing consumer spending and possibility of weak monsoons, there is a possibility that some of the stocks could hit the valuation hurdle in the near term.
Q: Which are the sectors that can be avoided now?
Given the global uncertainties, it would be advisable to limit exposure to global commodities like metals and energy sectors. Also, some of the export-oriented sectors are facing demand challenges and could be laggards in the near term.
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Q: What do you broadly expect from the Reserve Bank of India this week?
RBI is likely to maintain status quo in its forthcoming policy review meet. Though the input cost pressures are easing out and retail inflation has also moderated to sub 5 percent level, the possibility of weak monsoons and global uncertainties could prompt RBI to retain its wait and watch approach as of now.
Q: Do you see any big challenge for the ongoing equity market rally in coming months?
There are always challenges and concerns at any point of time. Some of the obvious issues discussed by investors are upcoming elections, progress on monsoons, extent of slowdown in Europe and the US, extended geo-political conflict among others.
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However, the top of the mind for long term investors including foreign institutions is the continued of economic policy and reforms in case the ruling party does not fare on expected lines in the national elections next year.
Q: When do you want to start taking exposure into IT space?
We already have exposure to IT mid-cap space in the some of our investment products. In fact, the recent rally has given us opportunity to book healthy profits in stocks like Persistent Systems and Zensar Technologies. We would continue to be very selective in IT services space in the near future.
Q: Your take on latest GDP numbers and expectations for FY24?
The GDP figures of 6.1 percent for Q4 FY2023 is way ahead of consensus estimates of 5.5 percent and has pushed the full year FY2023 GDP growth to 7.2 percent -- way higher than street expectations once again. The higher-than-expected growth in GDP is led by 4.5 percent surge in the manufacturing sector as compared to -1.4 percent in Q3FY2023 and 0.6 percent in Q4 FY2022. The agriculture sector also showed a sharp uptick to 5.5 percent ahead of expectations.
From equity markets point of view, the strong growth in manufacturing sector only reinforces the trend seen in Q4 quarterly results where many mid-sized companies in sectors like engineering, auto ancillary, building materials etc have shown a strong volume offtake. What’s more, the commentary on demand outlook is also quite encouraging in most of the cases and the easing of input cost pressure is adding to the management confidence.
Nifty has broken out of the 2,000 points range of 16,000-18,000 level and the market seems to be set to scale new peak in H2 of 2023. Interestingly, the broader markets are also doing well after a corrective phase of 18-20 months post peaking out in October 2021. We remain constructive on equity markets given our conviction on the beginning of a multi-year upcycle in the Indian economy ahead.
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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