On the corporate earnings season starting next week, "I expect good numbers from banking and finance, auto, real estate, capital goods segments. Metals and commodities, IT, cement may be weaker-than-expected," Mihir Vora, Senior Director & Chief Investment Officer at Max Life Insurance says in an interview to Moneycontrol.
The investment strategist further says it would be interesting to see if there are positive surprises in margins for auto, consumer discretionary, FMCG and pharmaceutical companies, given a good reduction in global commodity raw materials prices.
Mihir with more than 25 years of in-depth experience across asset classes believes hospitals is a structural long-term play given the trends in prosperity and lifestyle changes.
Q: Do you expect possibility of rerating in the BFSI sector after June quarter earnings?
The re-rating of financials is already on since the past few quarters due to excellent growth rates and good news on margins and asset quality. I expect asset quality to remain stable for the next few quarters and borrowing costs to start easing in the second half. This creates a good chemistry for continued outperformance. The key parameters to monitor will be rate of growth (demand for credit) and any stress in the retail asset book which has been the key focus for most banks and NBFCs over the past many years.
Within financials, there are pockets of relative value in NBFCs, insurance companies, asset management companies – segments that have underperformed so far and thus have scope for re-rating from these levels.
Q: Your thoughts on June FY24 quarter earnings season that will begin in July?
I expect good numbers from banking and finance, auto, real estate, capital goods segments. Metals and commodities, IT, cement may be weaker-than-expected.
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While urban consumption had picked up in the second half of 2022 and early 2023, we are now seeing mixed signals. So while we continue to prefer domestic plays over global plays, volume growth in domestic consumption (discretionary and staples) will be a key variable to watch.
It will be also interesting to see if there are positive surprises in margins for auto, consumer discretionary, FMCG and pharmaceutical companies as there has been a good reduction in global commodity raw materials.
Q: Are you bullish on the AMC stocks, which have seen significant run on Friday?
The segment is small in the overall scheme of things. The key overhang for the sector was regulatory activism which could potentially impact long-term margins. While the concern continues, the worst may be over, given the recent announcements and push-back by industry. Valuations are attractive and there may be an opportunity here.
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Q: Any thoughts on the private capex cycle? What could be the possible investment opportunities?
We are very positive on the capex theme. There are many segments which have different drivers viz. road and infrastructure spending by government, commercial and government buildings, railways, domestic manufacturing (defense, electronics, chemicals etc.), power transmission and distribution, renewable energy, green hydrogen etc.
The tailwinds for different segments are different, but we may be on the cusp of a good 3-5 years investment cycle and each segment has different stocks to play.
Q: Is the hospital space looking attractive now?
Yes. It is a structural long-term play given the trends in prosperity and lifestyle changes. In the shorter-term, post-covid, customers are coming back for elective surgeries and procedures. Medical tourism is reviving and capacity utilization is increasing.
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This sector has huge operating leverage and we expect earning estimates to be upgraded.
Q: We have seen big block deals in several companies in current month. Your thoughts?
The number of block deals is not surprising given current market levels and the current euphoria. A lot of the supply was expected to come to the market - this is especially true for the companies that had their IPOs in the last two years. Private equity funds have a finite life and these were expected to sell after the expiry of lock-in after the IPOs.
In some cases, promoters are also selling but the quantum of selling is not alarming, and is being easily absorbed.
Q: Is the equity markets gradually looking expensive now?
Valuations for largecaps are not in a concerning zone. They were expensive 18 months ago but since then the Nifty is not up much and earnings are up 15-20 percent as a few quarters have passed. There is some froth being built-up in the smallcap and midcap space but there are ample stock picking opportunities.
So while valuations are a little higher than long-term average but they can be justified given the good earnings growth outlook and strong macroeconomic situation for India (high forex reserves, lower oil, stable currency and reducing current account deficit).
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