Daily Voice: This CIO sees more room for market upside; says PSUs have changed for better

The Q3FY24 GDP numbers have been a positive surprise for the street, much higher than the consensus estimates. This, however, will surely normalise soon because of a couple of reasons. Firstly, a large part of this 8.4 percent GDP growth is due to an over 30 percent increase in net tax growth vis-à-vis a deceleration in the previous year. This is less likely to sustain over time.

Secondly, the subsidy outgo of the Centre dropped this time, which will eventually see a pick-up in the final budget after the elections. So more or less, the GDP should come to estimated levels in sometime. Due to these reasons, there is less likely that markets will react beyond a few days to this news and there will be a slight revision in the FY25 GDP forecast by the agencies.

Has the market priced in most of goldilocks scenario? Which will be the triggers to take the Nifty towards 25,000?

We are currently in a strong bull market phase wherein there are a large number of companies waiting to get listed and there are also numerous corporates wanting to raise capital due to the premium available. Given the momentum, there could be some more room for an upside, at least till the new government is formed at the Centre.

Over several years, we have also observed that when markets are defying logic, the best way to play the markets is to ride the trend until there is a reversal, irrespective of there being a trigger or no. Currently, we are in a phase where “all news is good news” and that itself is a trigger to take the markets upwards.

What can be the reasons for a possible bear case?

From a domestic specific standpoint, any sudden, out of expected turn in the political situation or elections could act as a party pooper for the markets. There could also be other international macros which could make a reasonable bear case for our markets such as escalation in the war and heightened forward inflation numbers which wouldn’t allow the scheduled rate cuts to occur etc.

Do you think earnings visibility will remain strong in FY25 too?

Given our economic stability and the improving BOP (balance of payment) situation compared to the other dominant world countries, India is well placed on the global map and has established itself to showcase its competency on several global issues.

This aspect along with several other government initiatives such as boost in infra, Make In India and PLI showcase good earnings visibility for the Indian businesses in FY25 too.

Do you expect a sharp correction in PSUs stock as valuations of many of them look expensive?

The path going forward would be to cherry-pick stocks which show strong earnings growth at fair valuations. Now, it could happen in many stocks but the key here is to compare their valuation to earnings growth and then to judge if the valuation is fair or expensive.

Just blindly comparing valuations to their historic levels wouldn’t be the right way of looking at things because a lot has changed in the past few years – balance sheets have been deleveraged, GST, RERA, NARC, etc have cleared up a lot of systemic issues and therefore, there is a scope for rerating in valuations in a number of stocks especially in PSUs as well.

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