"India remains one of the most expensive markets amongst major global markets due to a better growth outlook vis-à-vis other economies," Nishit Master, portfolio manager at Axis Securities PMS, says in an interview to Moneycontrol. He feels while the current market multiple is higher than the long-term average, it is still not in a bubble zone. The froth in the market currently is in the small and midcap space, he says. Master, a veteran with more than 16 years of experience in portfolio management, expects pharma, industrials including capital goods, auto / auto ancillaries, banks, and NBFCs to report strong earnings in the September quarter.
Edited excerpts:
Q: Do you think India is currently the most expensive market in major global markets but not in a bubble zone?
India remains one of the most expensive markets amongst major global markets due to a better growth outlook vis-à-vis other economies. The Indian market is currently trading at around a 75-percent premium to other emerging markets while its long-term average premium has been 40 percent. If one looks at forward PER, from a one-year forward perspective, Nifty50 is trading at ~20x its one-year forward earnings while its long-term average is 18x. Thus, while the current market multiple is higher than the long-term average, it is still not in a bubble zone. The froth in the market currently is in the small and midcap space.
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Q: Sectors that can report strong/weak earnings in the September quarter earnings season starting next month....
We expect pharma, industrials including capital goods, auto / auto ancillaries, banks, and NBFCs to report strong earnings in the September quarter, while metals, IT, and chemicals could report weaker earnings in the quarter.
Q: Should one buy midcap/smallcaps on every deep correction or are they still too expensive?
One needs to be careful in buying small and midcap names at current levels. The small and midcap index looks expensive, but if one sticks to buying quality names in the small and midcap space where there is a high probability of the company generating sustainable free cash flow and is available at reasonable valuations, one should invest in them.
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One must be much more bottom-up while buying mid and smallcap names in any market.
Q: What could be RBI's move in the October policy meeting, considering the August month inflation?
August inflation print has been lower-than-expected, with food prices correcting, while core inflation, though below 5 percent, has remained sticky. We believe RBI will continue to hold fort in the October policy meeting with no change in policy rates.
One area of concern is the recent rise in crude prices, with Brent crossing $90 per barrel. RBI will keep a keen eye on crude prices and any secondary effect on inflation going forward. But in the near term, we expect policy interest rates to remain stable at current levels.
Q: What will be the important factors to watch in the upcoming Fed policy meeting and Fed Chair commentary?
US inflation print in August came in hotter-than-expected, mainly driven by high energy and associated costs, while core inflation, though remaining high, came in slightly lower-than-expected. We expect the US Fed to maintain the key interest rate in the September policy.
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Some factors to watch in the upcoming Fed policy meetings are the projected dot plot, which will signal the future course of policy rates, expectations of growth and inflation, comments on the strength of the labour market, and any comments on the financial stability of small and midsize banks.
Q: Do you believe the growth outlook for the defence sector is intact?
We continue to like the defence space and believe it's possibly a structural growth story in India. Our primary concern remains on the high valuations the defence companies are currently trading at and the complacency of market participants for the volatile nature of earnings of defence companies.
We believe that the order book and earnings of defence companies will continue to grow, but this growth will not be linear, and there will be quarters or years where they might disappoint.
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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