Hemang Kapasi, the head of equities at Sanctum Wealth, is convinced that India is on track to be a $10-trillion economy and is bullish on five segments over the medium term.
Financialisation of savings, private capital expenditure, an increase in discretionary spending, real estate cycle and development of digital as well as physical infrastructure are the themes he is betting big on.
Kapasi, who manages has over 16 years of experience in the industry, however, would prefer to stay away from largecap IT names for some more time. The space remain expensive and is still some quarters away from making a turnaround, he tells Moneycontrol in an interview. Edited excerpts:
Should one continue to stay away from largecap IT names, especially after March quarter and full year earnings?
Yes, we believe that the largecap IT space is a few quarters away from turning a corner. Going by the results, so far, and the trend of the past quarter/year, the overall IT spending is still weak despite large deal wins by the companies. Growth could still be soft in CY24 if discretionary deals continue to get postponed or cancelled due to the challenging macro-economic environment.
Though valuations for largecap IT space are closer to the mean than that of midcap IT, they remain expensive versus their pre-COVID levels. Signs of improvement in the demand environment, H2FY25 onwards, can be used to assess the entry in largecap IT counters.
Keeping in view the global risk factors, is the market oversold or overvalued ?
Rather than saying it's oversold or not, we do expect volatility to remain high. As we enter the general election phase in India as well as escalating geopolitical situations, high levels of uncertainty in the short term will keep market volatility high.
On valuation, Nifty50 is trading within its long-period average P/E of around 20x FY25e EPS. While we have seen Nifty 50 EPS getting upgrades largely in the last few quarters, we need to monitor the earnings closely as expectation of earnings on Nifty50 for the March quarter is of mid-single digit growth, while the broader market earnings outlook at this juncture looks relatively better.
Do you expect inflation to remain sticky in the current calendar year? Have you changed your Fed funds rate cut expectations to 50 bps from 75 bps?
The consensus among Federal Reserve policymakers has been to maintain current borrowing costs until later in the year, considering continuing strength in the economy and the delayed and uneven progress being made on inflation.
The recent data from the US suggests that inflation is still sticky and the progress made during January and February appears to be stalling. This is because the slowing of inflation over October 2023-Februry 2024 was assisted by lower energy prices, and the same is reversing amidst uncertainty in the Middle East.
Against this backdrop, we believe that the Federal Reserve may be forced to hold on to cuts for longer than anticipated. Also, the data pertaining to the economy and employment continues to be strong, which keeps delaying rate-cut probability. We believe that the first rate cut could be closer to US elections, which are slated to be in November of this year.
What do you expect the most from the government after general elections?
The markets are discounting that the government will come back with a sizable majority. In addition to plans to make India a "product nation" with improved manufacturing capabilities in automobile, aviation, defence, telecom, electronics, railways, and semiconductors, the recently released manifesto clearly focuses on policy continuity, including fiscal prudence and infrastructure focus.
Additionally, significant expenditures in the energy sector will continue in the direction of 2047 energy independence.
Which are the sectors that you are betting on for FY25 and why?
Thanks to stable macroeconomic conditions, robust corporate profitability, stable interest rates, manageable inflation and continued policy impetus, India is going through a purple patch.
In line with the government's focus and spending on sectors such as manufacturing (establishing India as a global manufacturing hub) and infrastructure (roads, railways, airports, metros, inland waterways and shipping), our positioning is largely in domestic cyclicals space.
Our conviction is in the India story, as India is on track to be a $10-trillion economy over the coming decade. The sectors or themes that we find compelling over the medium term are the financialisation of savings, private capital expenditure, increase in discretionary spending, real estate cycle, and the massive development of both digital and physical infrastructure.
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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