On private banks, "If one is willing to look beyond very short term then there are some high-quality banks in India who would keep gaining market share given their technological advantage and hence this is a great space to be from a longer-term perspective," Santosh Singh, Fund Manager at Motilal Oswal Asset Management Company says in an interview to Moneycontrol.
The Chartered Accountant with over 20 years of experience in equity research and strategy believes the market is currently pricing in no political instability, and any news on this front can destabilise the market.
"I don’t see many positive triggers from the domestic side, however, if the US surprises on rate cuts then the market may see some further rerating."
Do you think the private banks are not offering a great risk reward at this point?
Over the past year, private banks, especially the large ones, have significantly underperformed Nifty as well as its PSU peers. This underperformance has been driven by a) NIM (net interest margin) pressure given they are coming off from an abnormally high NIM caused by a steep increase in repo rates b) slower deposit growth and c) the expectations from the banking sector were high given 2020-2022 were exceptional years.
Given the expectations that NIM may remain under pressure for some time given expectations of a repo rate cut and liquidity may remain tight, the near term can be a bit difficult for the stocks. However, if one is willing to look beyond the short term, some high-quality banks in India would keep gaining market share given their technological advantage and hence, this is a great space to be from a longer-term perspective.
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Do you think the worst is over for the IT sector and one should start accumulating these stocks?
IT sector stock’s performance for some time has been driven by an outlook in the US economy. When the market expected the US to do badly and the interest rate was on an upward trajectory, the IT sector kept on doing badly. However, my belief is this is one of the sectors with very high longevity as these companies would be key to driving digitisation globally, and hence long term this sector remains attractive.
In the near term, the belief is that the US interest rates have peaked and we may see a soft landing in the US. There are expectations of rate cuts even in the US. Also, the estimates of growth for the IT sector are at a multi-year low.
With this background, I do not see a lot many reasons for this sector to do badly. However, one needs to be careful as the sector has seen massive outperformance in the near term and one should buy these stocks only with a long-term view.
Also Read Moneycontrol's Exclusive Note on ICICI Bank Q3 Numbers
Do you expect the market to remain rangebound in the current calendar year? What are the positive and negative triggers that can change the market trend in the current year?
Given that the market is trading at a multiple between average and one standard deviation over long-term numbers, the performance of the market would be driven by earnings growth, which is expected to be in the mid-teens, and hence, the market return can match the EPS growth.
However, the market is currently pricing in no political instability, and any news on this front can destabilise the market. Also, the government policies till now are pro capex and the market is expecting continuity in these policies. If the budget continues to deliver on this then there may not be any negative triggers.
Also read: Five takeaways from Reliance Industries’ Q3 results
I don’t see many positive triggers from the domestic side, however, if the US surprises on rate cuts, the market may see some further rerating.
Are you bullish on the industrial space that will benefit from the capex in India?
Industrials as a space has done very well over the past year given the government’s focus on capex. We expect government policies to still be pro capex and hence industrials can keep doing well. However, one needs to be cognizant of the valuations as stocks are trading at multi-year high valuations.
Further, do you expect the government capex to continue and private investment to accelerate gradually in the coming quarters?
We are expecting the government to continue with its capex as the impact of this on the economy is clearly visible. Past experience suggests that private capex is always preceded by government capex and hence if the government focus persists then we may see private capex reviving and accelerating in coming quarters.
Do you see any major announcement from the government in the interim budget, especially ahead of the general elections?
I do not expect any major announcement as the interim budgets are generally vote on accounts. However, I would like to see the intentions in the budget.
Do you think the Fed funds rate cut may be getting delayed, though the Fed chair in the last meeting hinted at three rate cuts in the current year?
During the current cycle, the Fed has pointed out regularly that they would be data-driven. I still hold the view that we may see rate cuts in the current calendar year. However, the timing and extent of it would be data-dependent, and current strong data may delay the cuts.
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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