Sonam Srivastava, the Founder and Fund Manager at Wright Research, in an interview with Moneycontrol, described the FY24 quarter earnings for September as a varied assortment, but certainly not underwhelming.
Further, she said earnings so far haven't presented major surprises, yet the increased volatility stemming from geopolitical tensions has injected a sense of caution in the market.
When it comes to post-earnings sector investments, Srivastava, boasting over a decade of expertise in systematic portfolio management and quantitative trading, noted that this season has brought forth unique trends in various sectors.
"The FMCG sector within the consumption space is navigating inflationary pressures and volatile commodity prices, but with the festive and wedding season coming in, consumer behaviours may unlock new avenues. In the financial landscape, while giants like HDFC Bank hint at potential volatility, there seems to be a silver lining, particularly for agile financial institutions that can adapt swiftly," she said.
Q: Are the corporate earnings, announced so far, in line with your estimates?
The earnings so far have been a mixed bag but not at all disappointing. The first set of earnings came from IT majors, and these companies experienced a muted quarter due to a demand slowdown, macroeconomic headwinds, and weak discretionary spending. On the other hand, the banking sector is expected to post strong numbers, but HDFC Bank, after its merger, has shown variations in its net profit with a significant dip in the net interest margin.
Also read: Kotak Mahindra Bank Q2 Results: Net profit jumps 24% to Rs 3,191 crore, asset quality stays healthy
The FMCG sector has shown variations in growth numbers, and even with a positive outlook on cooling inflation, it remains vulnerable to fluctuating commodity prices. Real estate, media and metals have posted the best number till now while telecom and agriculture have been underperformers.
Q: After reading those earnings, have you changed your earnings expectations for the second half of FY24?
Earnings so far haven't presented major surprises, yet the increased volatility stemming from geopolitical tensions has injected a sense of caution in the market. It appears that larger stocks are facing more significant challenges, potentially giving smaller companies a competitive edge.
Consistent with earlier observations, the capital goods sector looks primed to benefit from amplified infrastructure spending, while global demand is bolstering the metals sector's prospects for robust returns.
The pharmaceutical industry is also on an upward trajectory, thanks to a surge in generic drug exports. However, challenges loom for the banking and automotive sectors. Banking could see tempered growth, and the automotive industry's outlook seems more restrained.
Also read: ICICI Bank Q2 Results: Net profit surges 36% to Rs 10,261 crore; bad loan provisions fall
Q: Which are the sectors that you would like to bet on after the current corporate earnings season?
This season distinct trends have emerged across sectors. The FMCG sector within the consumption space is navigating inflationary pressures and volatile commodity prices, but with the festive and wedding season coming in, consumer behaviours may unlock new avenues. Capital goods are riding a wave of optimism due to anticipated hikes in infrastructure spending, signaling robust growth.
The real estate sector, buoyed by urbanization and attractive interest rates, is witnessing a renaissance after the pandemic-induced lull. In the financial landscape, while giants like HDFC Bank hint at potential volatility, there seems to be a silver lining, particularly for agile financial institutions that can adapt swiftly. Notably, the metals sector, bolstered by surging global demand and infrastructure endeavors, stands out as a promising contender.
Q: Do you see the possibility of deep correction considering the global environment including geopolitical tensions?
Given the current global environment, including geopolitical tensions, a deep correction in the markets is a fear in investors' minds. However, the Indian markets have demonstrated resilience in the past. The country's growth projections remain strong, and with the potential cooling of inflation, there's scope for easing interest rates. This paints a positive picture of the Indian economic landscape.
Also read: Push Me Pull You Markets
That said, the ongoing Israel-Hamas conflict could indeed disrupt supply chains, given Israel's significant ports. While the US Federal Reserve has reassured investors of its proactive measures, global interconnectivity means that significant shifts in one major economy can ripple across the world. So, while the Indian market appears robust, external factors could introduce volatility.
Q: After reading central banks' commentaries, do you think interest rates are not at the peak levels yet?
Based on the recent commentary from Federal Reserve Chairman Jerome Powell, it appears that the central bank is closely monitoring inflation and the broader economic landscape. Powell has acknowledged the cooling of inflation and has emphasized the Fed's commitment to its 2 percent inflation target. While he did not explicitly signal immediate hikes in interest rates, he also didn't indicate that they've reached their peak.
His cautious approach suggests that the Federal Reserve is open to further adjustments based on evolving economic data. Thus, given the current stance and the ongoing economic uncertainties, it's plausible to infer that interest rates may not have reached their peak levels yet.
Q: Is the right time to add new age stocks like Paytm, Zomato, Delhivery etc, given their improving earnings performance?
The earnings for these new-age stocks are the most exciting as they navigate a path towards profitability, any positive development towards profitability is rewarded while any miss can bring a whiplash in prices. With Fintech giant Paytm reporting a 32 percent rise in revenue and a reduction in losses, it seems set for a positive price swing.
Also read: Paytm to add 1.5 million PoS devices every quarter, bets big on merchant lending
Zomato and Delhivery are also projected to showcase robust numbers and the price rise before earnings has been strong in anticipation. These stocks with high gross merchandise values (GMVs) if they can navigate profitability can become long-term winners but their journeys will be most interesting anyway.
Q: Experts seem divided over the US recession. What is your take?
The debate on a potential US recession is intensifying among experts. While unemployment data points towards a robust economy, with claims reaching near-historic lows, several concerning factors loom large. The Federal Reserve's uncertainty over interest rates, combined with geopolitical tensions, can affect economic stability.
Additionally, potential threats to the US credit rating, especially while financing two wars, could raise borrowing costs and strain the budget. Other indicators like a possible GDP slowdown and trade imbalances add to the concerns. Thus, despite positive unemployment figures, challenges like high interest rates, credit concerns, and military financial commitments present a complex scenario. Astute economic strategies will be crucial in navigating the uncertain times 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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