According to Naveen Chandramohan, Founder and Fund Manager of Itus Capital Advisors, it is likely that the current government will win the 2024 general elections. In an interview with Moneycontrol, he suggests that any risk to the current government leading up to the election could result in market volatility around mid-2024.
In terms of investment opportunities for Diwali 2023, Naveen, with over 16 years of experience in financial markets, recommends a medium-term investment strategy with a focus on infrastructure and power, which he believes will continue to perform well over the next 2-3 years.
Q: Is the September quarter earnings season slightly below your expectations?
The September quarter earnings have seen broad-based volume and margin expansion and, in many cases, has beat our expectation. B2B businesses continue to show strong growth and we have seen volume expansion across auto–passenger vehicles, 2-wheeler and commercial vehicles included.
Banking and financial services continue to see a 20 percent+ loan growth as a sector with a NIM (net interest margin) contraction, which we expect to continue into the next few quarters.
We have seen strong deployment of private capex aided by cash flows and the fundamentals bode well thus far.
Also read: India among best places in emerging markets, macro economy stable: Chetan Ahya of Morgan Stanley
Q: Have you made any changes to your earnings estimates for FY24 and 2HFY24?
At Itus, we do not make estimate changes based on one-quarter of earnings. In our previous conversations, we spoke about the cycle being strong for the supply side of the economy, and we continue to believe this to be the case.
Q: Winners and losers in the earnings season?
The winners continue to be broad-based thus far – capital goods, auto, real estate, construction and banking (from a loan growth perspective) alongside financial services (including broking). The sectors that have had headwinds are chemicals and textiles.
Q: Are you cautious about the auto ancillaries companies that export to the US and Europe?
It is important to appreciate that auto ancillaries are cyclical businesses. Inherently very few manage to maintain their pricing power across time as the value addition component from a technology perspective remains low.
Also read: ‘Bond King’ Jeffrey Gundlach expects recession in 2024, predicts lower interest rates
There are select auto-ancillaries though who have achieved scale through a technological edge they bring or through efficiency in processes. We continue to own some of them in our portfolio. The valuations of these companies no longer offer margin of safety to be buying them today though.
Q: Are the valuations turned quite attractive in the banking space?
The valuations in the core private sector banking industry has certainly turned attractive with many of the banks available at the mean end of their earnings valuations. The important question though for us at Itus is are we in a regime of structurally lower RoEs (return on equities). This is something we believe is a risk to valuations.
While we expect the loan growth to be robust, we believe the RoE’s in the next 3 years have a risk to the downside. This is something we would want to be cognizant of.
Also read: AMFI asks mutual funds to display only 10-year CAGR return in advertisements
Q: Your phataka sector for investment on Diwali 2023.....
If an investor takes a slightly medium-term view over the next 2-3 years, I believe infrastructure and power will continue to surprise on the upside.
Q: Do you see the general elections (2024) as a big risk to the market? If not, then what would be the risk?
I believe that risk is something we do not speak about. These are events that we do not price for. While the elections is in 2024, if there is any risk to the current government, this will not be a digital event, this will surface in the form of volatility going into mid-2024.
While we all have a certain view, I would still price in the current government coming back to power in 2024.
Q: Do you like the real estate segment, given the no change in interest rates?
I believe the transactional volume will continue to be robust. The balance sheets of real estate players look better than the previous cycle as they have de-levered and the carrying inventory has been cleared.
While we own real estate ancillaries and do not own developers – investors can certainly allocate a certain portion of their capital into a real estate basket of stocks.
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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
