Sanjay Chawla, the Chief Investment Officer for Equities at Baroda BNP Paribas Mutual Fund, said in an interview with Moneycontrol that he remains enthusiastic about the automotive and automotive ancillary sector. He pointed out that the sustained capital expenditure demand is still fueling the industrial segment in India.
Off late, he has seen some green shoots in the IT sector. This is a combination of some early signs of demand revival and valuation comfort, he believes.
With more than 33 years of experience in fund management, equity research, and management consultancy, Sanjay Chawla offers insights on the housing finance sector. He suggests that housing finance companies that can safeguard their profit margins in the near future without negatively impacting their financial health are likely to perform favorably in the stock market.
Q: Do you see further pick-up in economic and earnings growth going ahead?
India’s GDP grew at 7.8 percent for April-June 2023, as per data released by the National Statistical Office (NSO). These were more or less in line with the consensus expectations. What is interesting to note is the various components of the growth services sector was the key growth driver. Agriculture growth at 3.5 percent while being lower than the overall GDP has shown some signs of stabilization despite the vagaries of the monsoon. There has been some front-loading of capex too on account of likely State and Central elections in the next 12 months.
With consensus and RBI expecting India’s GDP to be 6.5 percent, it would mean GDP growth is front-loaded. If the festive season and rural demand surprises then we may see the coming quarter reporting GDP better than expectations. We are yet to see the impact of monetary tightening and slowdown in Global Markets.
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Economic growth seems to be front-loaded with Fiscal year 2024 expected to report a GDP growth of around 6.5 percent. This is building on normal festive demand and normal monsoon. Spatial distribution and quantum of monsoon have not been very encouraging. This would mean September rains are very crucial to understand how rural demand would eventually pan out.
April-June 2023 has seen very robust PAT growth for NIFTY companies. This has led to an earnings upgrade for FY2023-24 earnings by about 2 percent. Q1FY2024 earnings were driven by margins surprising due to a fall in commodity prices. Currently, the consensus is building in mid-teens earnings growth. This seems to be a reasonable ask given the current domestic and international economic scenario. We will closely monitor the volume growth in coming quarters to see if earnings estimates could surprise from hereon.
Q: Any risk factor in the rest of the current financial year, that can further dampen the equity market participants' mood?
There are a couple of factors we are closely monitoring. Monsoon is the most important factor to watch out for. Next 9 months we shall be hitting the election trail with a number of state and central elections due. The market would love to see stability in Governance.
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Globally, most of the developed countries continue to see anemic growth with inflation higher than their comfort zone. Higher rates may suck out liquidity from emerging markets. Finally, the Chinese economy has been slowing down and there are various measures being implemented to stimulate consumer demand. Being a factory of the world, any excess capacity may spill over globally and may upset the market dynamics.
Q: Have you spotted any new themes for your portfolios?
We continuously evaluate our portfolio and look for emerging opportunities. We continue to be excited about the auto and auto ancillary sector. We are seeing good capex demand continuing to drive Industrial segment in India.
Off late we have seen some green shoots in the IT sector. This is a combination of some early signs of demand revival and valuation comfort.
Q: Do you see massive scope for formalisation in the diagnostics space?
Share of the formalized diagnostic companies or Brand name diagnostics in the overall market is small. Part of the reason is due to the localized nature of collection centers and the lack of reach of large diagnostic companies.
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Large diagnostic companies have the technology wherewithal to ensure right quality and consistent results. However, their overheads and cost of reach prevent a dominant pan-India presence. Hence most of the branded diagnostic companies have adopted a cluster approach for growth. Thus it is a calibrated approach to growth and not at the expense of profitability.
Q: Your take on the housing finance companies....
We have continued to see healthy growth in housing finance companies’ business. With real estate continuing to see reasonable demand, we don’t see any reason why the same should not translate to continued requirements for mortgages.
Since housing loans are for long terms and most of the liabilities are medium term, housing finance companies that can manage to protect the margins in coming times without impairing their balance sheet should do well on bourses.
Q: Are you bullish on housing and building material theme?
Housing and building material companies are essentially late cyclical in the real estate sector. Post Covid we have seen good traction in the real estate sector. We expect the same to translate into companies catering to late-cycle suppliers.
Almost all companies in housing and material suppliers are in Mid and small cap space. Our approach to this space is essentially bottoms-up basis. Notwithstanding our positive stance on this theme, we would evaluate each company from business and valuations perspective. Currently, valuations appear to be a tad expensive.
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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