Daily Voice: This fund manager bullish on financials and IT, sees potential wealth generation

Given the significant role equity markets play in wealth creation and their contribution to overall economic development, it's unlikely that there will be any major changes to the capital gains tax in the upcoming full Union Budget. Over the past decade, equity markets have emerged as a vital source of capital, and there is a widespread understanding of their importance across various stakeholders.

Considering this, it's improbable that any substantial alterations will be made that could impede the growth of capital markets. Therefore, I anticipate that there won't be any significant disruptive changes shortly.

Which are the sectors that can generate wealth in the coming couple of years and should be added in the portfolio now?

As an investor, my strategy revolves around identifying sectors with substantial growth potential that align with long-term structural trends and are currently undervalued. Sectors meeting these fundamental criteria typically fall on my radar, especially those experiencing temporary setbacks due to cyclical downturns or shifting investor preferences.

Two sectors that stand out in this regard are Financials and Information Technology (IT). Despite their recent underperformance, both sectors possess significant size and structural characteristics. Factors such as the interest rate cycle and global economic slowdown have contributed to their current challenges.

While there may be delays in their recovery due to prolonged interest rate cuts, their appeal is heightened by stretched valuations in other sectors.

Therefore, I believe the Financials and IT sectors warrant close attention and consideration for inclusion in portfolios in the upcoming period, as they have the potential to generate wealth over the next couple of years.

Are you super bullish on the financial services space?

The sector has been one of the underperformers over the last couple of years even though the numbers have not been bad, this underperformance has been mainly driven by expectations of declining NIM and outperformance in the period preceding the last couple of years.

Financials is a really large sector where I would still expect the large banks to underperform in the near term given my expectations of repo cut during the year, however, I would expect the other lenders to start performing.

Also, I remain extremely bullish on the non-lending financials space specifically insurance as it has been performing badly despite good performance on fundamentals in the last couple of years, with IFRS implementation in the next couple of years this one segment of financials may see a sharp jump in profitability.

Is it the right time to have rural plays in the portfolio?

Rural has been lagging behind urban for some time; this has led to rural-centric consumption stocks not doing well.

I believe that the impact of government policies and initiatives as well as the Indian economy doing well should start showing up in rural consumption as well in the coming year.

Do you see more headwinds than tailwinds for the equity markets in FY25

In my view, FY25 may be much milder from a return perspective compared to FY24 given that the valuations are slightly on the higher end, however, we may still see double-digit EPS growth which would mean that we may not see a fall. However, returns from the markets would be capped in the FY25.

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.