Daily Voice: Market hopeful for robust rebound in Q2 earnings, but this CIO maintains a cautious stance

Whether the market will experience a price correction or remain in a period of consolidation will hinge on forthcoming news developments. The Nifty index is currently trading at a price-to-earnings ratio of 23.5, which is at the upper bound of its typical trading range of 20-24. Simultaneously, corporate earnings during the recently concluded quarterly results season were lacklustre. In contrast to the previous two financial years, where Nifty earnings per share grew by more than 20 percent, expectations for FY25 now have been revised downwards to around 10 percent. Therefore, while the Indian market maintains a bullish trajectory in the long term, prudence dictates some caution in the short term.

Do you see any big trigger for the market, apart from Fed?

The outcome of the US election is significant as it will have a wider impact on most of the financial markets, currency, commodities, bonds, and equities. Another key factor to consider in the near term is the US employment data scheduled for September 6th. The sharp market drop in early August was a direct result of the surprisingly poor employment figures released last month.

FED policy measures remain a big trigger for the short-term movement. While the July policy minutes maintained a bit of a hawkish tone, the market is expecting a cut of 25 to more hopeful 50bps cuts.

Is it the time to add big exposure to banks? Where do you see the strong opportunity of investment - private banks or PSU banks?

Over the past four years, bank stocks have lagged behind the overall market as other sectors have experienced stronger growth. However, banks remain solid investments, and their valuations are currently attractive. It's advisable to gradually accumulate banking stocks, with a preference for private banks. We prefer private banks as the valuation differential with PSU banks has narrowed. Also, a sharp fall in provisioning and write-backs for PSU banks is behind, and net profit growth now will be more in line with the business growth where Private banks continue to do better.

Are you bullish on the power financing space as well as other segments in the power space?

Capacity addition in the power sector till 2031-32 is expected to be around 4.4 lakh MWH resulting in a capex requirement of around Rs 26.66 lakh crore. This is highly positive for power financing companies. Power demand in India has continuously grown at 7 percent per annum and now demand almost matches the supply in the market requiring urgent capex both for the coal-based power plants as well as renewables. This means good business for equipment manufacturers for power plants and transmission networks too.

Do you see moderation in earnings growth in the current financial year?

The first quarter of fiscal year 2025 has signaled a deceleration in earnings growth. While the market is hopeful for a robust rebound in the second quarter, we maintain a cautious stance.

Do you see any possibility of a slowdown in domestic liquidity? If not, then where do you want to bet on?

Domestic liquidity remains healthy, and we foresee no major shifts. In addition, foreign institutional investors' interest in recent block deals suggests a possible return following a market correction. Although we expect some price or time correction, we maintain a positive long-term view of investments.

Our current investment preferences include banks, power sector capital expenditure stocks, automotive and automotive components, select new-age businesses, electronics manufacturing, data center opportunities, and circular economy-related stocks.

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