"Given the growth opportunity and the increasing RoEs (return on equity) of most companies, it is likely that Nifty earnings going forward could be higher. On that basis, it is probably too early to call out a fair valuation of Nifty," Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, says in an interview with Moneycontrol.
With 20 years of expertise in capital markets, Gupta emphasizes a scientific approach to equity investments. He believes that the current year being an election year poses a significant challenge. This is mainly due to the long-term nature of numerous projects, which rely directly on the Government or its policies.
Among sectors, he is optimistic about specific subsectors in manufacturing, such as railways, defence, EV ecosystem, etc.
Q: Do you see any big risk factor that can dent market sentiment in the rest of the financial year?
Compared to historical levels it looks like Nifty is just above its long-term median level. However, if one looks at the top-10 constituents of Nifty, one will see that there are 5 banks or financial services companies, 2 pure play IT companies, one conglomerate—an infrastructure giant—holding 3 IT companies and present in several new age businesses including finance, one consumer goods and services conglomerate including an IT business, and one conglomerate in energy to telecom to retail and several new-age businesses including digital and IT.
One can see that the financial companies or banks are exposed to a large growth opportunity given that we are at the beginning of a new capex cycle driven by, both, the Government as well as the private corporations. Similarly, several IT and digital businesses have a promising growth trajectory as the digital and AI age reaches an inflection point, both globally and domestically.
Also, the overall economic growth of India commands more energy and infrastructure as well as green technology and EVs (electric vehicles). All of this is from just the Top-10 companies in Nifty.
Given the growth opportunity and the increasing RoEs (return on equity) of most companies, it is likely that Nifty earnings going forward could be higher. On that basis, it is probably too early to call out a fair valuation of Nifty.
This is an election year and that will remain a challenge since many projects are long-term in nature and dependent either directly on the Government or on Government policies. That will impact the growth of banks, infrastructure, energy, new age and digital businesses. Thus, those risks become more prominent in a year where there is uncertainty on the continuity of government policies.
Q: Will the consumer space remain expensive?
Mostly it has been expensive for years now, probably a full decade or more. It continues to be expensive. One will have to dig really deep into the markets to come up with a few fairly priced opportunities.
Q: What is your take on the possible rate hikes hinted at by Fed Chair Jerome Powell in June policy meeting?
It does look like the Fed is not comfortable with the slow pace of inflation reduction so far. Also, they are worried about financial market participants anticipating rate cuts too early and loosening financial conditions in anticipation. Hence, the really hawkish dot plot.
Yes, if the inflation remains high, unemployment low and GDP growing at a positive rate then it looks likely that the Fed could increase twice in the rest of the year. In fact, Powell has clearly stated that that is what they plan to do if the data comes as I mentioned earlier.
However, if data comes in differently and inflation looks like it is reducing faster, or systemic risks start affecting banks or other financial firms then the rate hikes might be avoided. But, yes, at this point the Fed has virtually stated that they will raise if they don’t see a significant decrease in inflation.
Q: What are your broad expectations from June FY24 quarter earnings which will kick off next month?
We are optimistic for FY24 and think there might be upside surprises possibly.
Q: Are you optimistic about the manufacturing space?
We are optimistic about specific subsectors in manufacturing, such as railways, defence, EV ecosystem, etc. Also, traditional manufacturing is likely to grow and drive the economy as a whole as investments in infrastructure from the government continue.
One should look at the fundamental strength of balance sheets, order books, growth opportunities and most importantly appropriate valuations before adding a company to their portfolio.
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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