Daily Voice: This fund manager sees strong earnings growth of 13-15% in FY25/FY26

Neeraj Gaurh, the Fund Manager of Axis Securities

Axis Securities expects strong earnings growth in FY25 and FY26, ranging between 13 percent and 15 percent, Neeraj Gaurh, a fund manager at the brokerage, told Moneycontrol during an interview.

Among sectors, Axis Securities has good exposure to the PSU space in its Contra PMS and owns an oil marketing company (OMC) across all its schemes.

On the global front, "We prefer to keep an eye on the US economy instead of the US elections," says Gaurh, who has spent nearly two decades in the financial services industry. Regardless of the election outcome, he said, "we'll stick to our investment strategies based on solid fundamentals".

Edited excerpts from the interaction follow.

Do you think the industrial, PSU and real estate sectors are likely to see a big rally in the coming period?

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Neeraj Gaurh

fund manager|Axis Securities

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Cyclicals are driving earnings growth, and we continue to be positive on the capex cycle for the medium term. We like select capital goods, auto ancillaries, cement and manufacturing-oriented names. Last year, we launched our Kaizen PMS theme, which is focused on manufacturing, and this scheme will not invest in the services sector. Six months' returns ending April 30 stood at about 27.7 percent.

We have good exposure to the PSU space in our Contra PMS, which helped us significantly outperform the benchmark this year. We also own an OMC across all our schemes. Real estate valuations are now significantly above the historical levels, and we would play that theme with a proxy like cement.

Globally, do you think China is likely to be the best performer in 2024?

China saw its biggest monthly outperformance in April, with MSCI China outperforming MSCI Emerging Markets by 6.2 percent. The Shanghai Composite Index rose by 2.1 percent in April and is up at about 15.4 percent (as of 15th May) from the lows in February. There could be a further push from the Chinese Politburo, but in our opinion, China trade is more tactical than structural. Fundamental issues of overcapacity and deflation remain.

Is the Q4FY24 earnings season broadly subdued, barring the private financial space?

After three consecutive quarters of upgrades, consensus Nifty EPS estimates for FY25/26 saw cuts of less than 1 percent in April. These have been concentrated in financials (HDFC Bank, Kotak Mahindra Bank) and IT services (mostly Infosys). At 13 percent to 15 percent, the FY25/FY26 EPS growth estimates remain healthy.

Hence, roll-forward should support growth in forward earnings, helping time correction and keeping markets stable. Despite this, the expected growth in earnings for FY25/FY26, ranging from 13 percent to 15 percent, remains strong. So, as we move forward, the anticipated growth in future earnings should help time correction, ensuring a stable market environment.

Do you think the US elections could be a game changer?

We prefer to keep an eye on the US economy instead of the US elections. However, we'll pay attention to any tax changes that might happen after the elections, as these could have a significant impact in the medium to long term. Uncertainty around the election results or policies might cause some volatility in the market. But regardless of the outcome, we'll stick to our investment strategies based on solid fundamentals.

Do you see a fair chance of an interest rate cut by the US Federal Reserve in September or November 2024?

The latest Federal Reserve commentary indicates that the committee is not keen on raising interest rates right now and is focused on how long they'll keep rates steady. The next step might be a rate cut, although (Jerome) Powell, the Fed chair, isn't completely sure about inflation but still believes that it will go down by the end of the year. The markets will probably keep a close eye on economic data in the coming months.

Do you see a strong revival in rural demand in the second half of FY25? Are you playing rural themes through any sectors right now?

While certain signs like tractor sales are still slow, we're seeing some improvement in the sales of two-wheelers. Last month, there was even a rise in moped sales. However, rural inflation, especially food prices, is still high and it needs to come down before we see a significant uptick in rural demand. We're also keeping an eye out for any steps the government might take in the July budget to revive demand.

We're currently invested in sectors related to rural themes, like companies making two-wheelers, other auto OEMs, and auto ancillaries with good exposure to the two-wheeler industry. This strategy has helped our PMS schemes—Growth, Contra and Kaizen—deliver better returns than the market benchmarks.

We are underweight in consumer staples for now.

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.