Regarding the entire consumption segment, "We are not aggressive in deploying money as yet, as interaction with listed companies doesn't suggest a significant improvement," Sheetal Malpani, Chief Investment Officer and Head of Equity at Tamohara said in an interview with Moneycontrol.
However, according to him, discretionary consumption seems to be a reasonable place to allocate incremental capital (real estate, luxury cars, travel or entertainment).
On the market, he believes given the outlook on earnings, the Nifty will probably spend more time between 23,000 to 26,000 levels. Also, "the supply of new paper has increased which will keep market valuations in check till profit growth picks up," said Malpani with more than 14 years of experience in the Indian capital markets.
Do you want to wait for more months before jumping into the consumption sector?
It depends upon which segment of consumption we are looking at. Indian consumer consumption basket has changed a lot in the last 5 years especially post covid. With democratization of technology and distribution evolving rapidly, newer brands and categories are taking growth away from the traditional ones.
Discretionary consumption is a segment that seems to be a reasonable place for us to allocate incremental capital, be it real estate, luxury cars, travel or entertainment, even as the lower end of consumption pyramid struggles.
Overall, we are not aggressive in deploying money in consumption as yet, as our interaction with listed companies doesn't suggest a significant improvement.
Do you expect a strong pick-up in government capex from January onwards, with increasing tendering activities in defence, railways, and highways?
January-March quarter is anyways the business end of the year when the government pushes for project completions. Given the capex spend is below the trend line YTD, we expect capex to pick up. Recent announcements of some projects and tenders are further corroborating the same. The focus will be more on how much the government sets aside in the next budget (on February 1st) as it will set the direction for the next few years of growth trajectory for the above sectors.
If yes, are you taking exposure to these sectors?
We have some exposure to these sectors and are sticking to them only. Haven’t added any new names or any weight. We would watch out for the newsflow over the next 2 months as valuations are still a bit optimistic, factoring in a growth of more than 18-20% for the next 3-4 years to justify buying at current valuations.
Our previous exposure has been to short-cycle capital goods companies that service these sectors, and that remains our current focus.
Do you expect the equity market to remain rangebound until the Union Budget? Will the budget provide direction to the market for 2025?
It is anyone's guess how the market will behave in the short term. Given the outlook on earnings, it is probable that we spend more time between 23,000 to 26,000 Nifty levels. Also, the supply of new paper has increased which will keep market valuations in check till profit growth picks up.
Are you betting on an earnings recovery from Q4 FY25 onwards?
Earnings recovery from Q4 FY25 levels should come by. However, valuations are demanding a shaper recovery which looks tough. Many sectors are operating at above-average profitability while revenue growth is in mid-single digits. So we need conclusive evidence of a turnaround in revenue growth for many sectors for sustained earnings growth for broader markets as margin expansion which started post-FY23 depressed numbers owing to the Russia-Ukraine war, has completely played out. Earnings in FY24 were capitulated by margin expansion despite tepid single-digit sales growth.
Do you foresee any challenges for the RBI’s FY25 growth forecast?
FY25 growth has been lowered post Q2GDP print. The falling rupee makes the RBI’s job even harder to cut rates and push growth. We should ignore near-term noise on GDP growth rates and see how fast we can revert to our trend growth of 6.5%. The slowdown in GDP growth and thus corporate profit growth has resulted in equity market correction. Prolong slowdown will result in more time correction rather than price correction.
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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