"Domestic demand, particularly in 4-wheeler and commercial vehicles, continues to remain strong. 2-wheeler in select pockets is doing well, but certain segments will depend on rural recovery," Sushant Bhansali, CEO at Ambit Asset Management, said in an interview with Moneycontrol.
He is of the view that autos will see a strong year led by sustained demand, receding inflationary trends and operating leverage driving earnings growth.
Based on his experience of over 19 years in asset management, capital markets, and advisory for M&A deals, Sushant Bhansali believes the export-oriented sectors could see some moderation led by an uncertain outlook and demand postponement in the near term.
Q: Do you see compression coming in the net interest margin (NIM) for banks?
The cost of funds has moved up sharply courtesy of rising rates. As banks increase deposit rates to attract funds to support sustained high loan growth NIMs will contract. This contraction is consistent with the lagged normalisation in deposit rates, although banks should be able to offset some of the impacts as they are gradually pass-through policy rate hikes to corporate loans, which are typically slower to reprice than retail and SME loans.
We will probably see some moderation in industry NIMs from the FY23 high of ~3.55 percent, but as a whole, we expect them to be higher than the 5-year average of ~3.1 percent.
Q: Do you expect better earnings growth for Q1FY24, after reading ongoing corporate earnings for Q4FY23?
Nifty earnings growth for Q4 so far has been broad-based with banks, auto, consumer, and discretionary sectors leading the profitability. Given the demand momentum, the recent correction in commodity prices coupled with receding inflationary trends, earnings will gain further momentum going forward.
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However, we do expect divergence between sectors as well as within sectors as the economy is now normalised and competitive intensity is high again.
Q: Are the Nifty levels supported by earnings?
Markets are certainly driven by earnings (mostly) and liquidity (at times). Given that India continues to shine from a growth perspective, corporate earnings delivery is strong amidst the backdrop of the interest rate cycle, unprecedented inflation and an uncertain global macro environment.
We expect 15-16 percent earnings CAGR over FY23-FY25. India’s growth trajectory stands out in the global context, and Nifty is trading around long-term average valuations, thereby giving a unique opportunity to investors.
Q: Are you gung-ho on the auto sector?
Domestic demand, particularly in 4-wheeler and commercial vehicles, continues to remain strong. 2-wheeler in select pockets are doing well, but certain segments will depend on rural recovery. Our view is that Autos will see a strong year led by sustained demand, receding inflationary trends and operating leverage driving earnings growth.
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Q: Do you still have a cautious view on export-related sectors?
Recession probability in developed markets has reduced from January 2023 until now. However, the situation is not completely normal. We believe that the export-oriented sectors could see some moderation led by an uncertain outlook and demand postponement in the near term.
Q: Is it better to take exposure to realty ancillary stocks instead of core real estate space?
Higher per capita income, improving urbanisation, formalisation of the economy & disposable income has been the mega themes for sectors like building material, home improvement, furnishing, etc. We believe companies in these sectors are well placed to capitalise on this multi-year theme.
We do not have national players yet in the Indian real estate space yet but most of the ancillary players have a pan-India presence and also have product portfolios across income levels thereby offering a better risk-reward opportunity.
Q: What are the biggest concerns for the equity markets and economy in the rest of the financial year?
Economic growth slowdown (especially in rural India), El-Nino developments in the upcoming Monsoon & subsequent impact on inflation, and significant recession in the global economy are amongst the key areas to monitor for the current fiscal. National Elections scheduled for early FY25 might create some turbulence, and a few state elections scheduled at the end of 2023 would be keenly watched by market participants.
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