According to Vikas Khemani of Carnelian Asset Management & Advisors, markets are yet to recognise the expected positive surprises in the earnings growth.
"We have seen a lot of downgrades in the market, which we think will reverse,e and markets are yet to price in," he said in an interview with Moneycontrol.
He is of the view that the markets have ignored all policy pivots of the RBI, rate cuts, liquidity push which are the enablers of growth.
According to the Founder & CIO of Carnelian Asset Management, it is very clear by now that the tariff tantrum didn’t have much legs. "The US doesn’t have the ability to bring back manufacturing, and tariffs only create inflation," he said.
Do you strongly believe that most of the bad news is already discounted in the market?
I think most of the bad news, like the US tariff/ Indo-Pakistan, etc., is behind us, and markets will discount most of the news around this if it were to recur in the future. Markets might take time due to other factors to resume normalcy; until then, it is likely to remain in a narrow range.
Do you still see any risk from the tariff factor? What are the key challenges for the market for the rest of the financial year?
It is very clear by now that the tariff tantrum didn’t have much legs. The US doesn’t have the ability to bring back manufacturing, and tariffs only create inflation. Tariff talks are for negotiating to get US companies better access, especially in China.
Do you believe the markets have already priced in the expected earnings growth for the next 12–18 months?
I think markets are yet to recognise the positive surprises in the earnings growth. We have seen a lot of downgrades in the market, which we think will reverse, and markets are yet to price in. Markets have ignored all policy pivots of the RBI, rate cuts, and liquidity push, which are the enablers for growth.
Do you expect positive earnings surprises from private banks and the consumer sector?
Yes, we think of earnings of BFSI & domestic consumption sectors. With rate cuts, NIMs will remain under pressure for a couple of quarters, but earnings should see acceleration by next FY. With credit growth coming back,an increase in private capex, BFSI overall should do very good.
Do you foresee an earnings recovery in the IT sector in the second half of this financial year?
We have positive view on IT for some time. While the market seems to be concerned about growth, order book of the large players like TCS, HCL Technologies are at highs, which indicatesa decent environment. We think in couple of quarters, IT earnings should start bouncing back. Within IT, mid size companies, product-oriented companies are better placed than large IT companies.
Are you bullish on staple companies?
With the tax rate cut, the government priorities have now changed towards more welfare, affordable consumption. We think consumption - staples in particular should do good from now over medium to long term. Additionally, with good monsoon forecasts this year, rural spending is likely to rise, further supporting broad-based consumption growth.
What is the likelihood that the strong FII flows seen this month will continue throughout the entire financial year?
We have said repeatedly over the last year, it is a function of global interest rates. As the uncertainty over Fed rates reduces, India will receive a huge flow. Global investors are significantly underweight India, and it will change over the next 5-10 years. We expect India's equity weight to increase over the next decade in India, which would result in an inflow of $1.5 trillion (on a current basis), which is substantial given India's current market capitalization of $5 trillion. It's a matter of time. Likewise, domestic flow will continue to come over the next decade. Domestic household exposure to equity is still around 5 percent, which can go to 15 percent over the next 10 years.
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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