Daily Voice | This investment strategist thinks valuations in most consumer-oriented sectors are overextended

Do you see major concerns for economic growth in the coming quarters after reading the recent GDP data?

After reviewing the latest GDP data, it is essential to adopt a cautious yet adaptable perspective on the trajectory of economic growth. Sustained trends in GDP data and revisions over time will provide a more comprehensive understanding of the situation. As scientific investors, it is imperative to remain open to diverse sources of information, especially if they challenge our current outlook.

Our current stance leans toward optimism, anticipating an upward surprise compared to consensus growth estimates. Nevertheless, we actively seek and consider counter viewpoints, remaining willing to adjust our stance when compelling evidence emerges. This approach aligns with the notion that intelligent minds can hold multiple future scenarios with probabilistic estimates and update these estimates using Bayesian principles.

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In essence, we keep various potential future scenarios in mind and adjust our probabilities based on concrete evidence from various sources. While no single future view is certain, certain scenarios may carry more weight. Presently, indicators lean toward favourable growth, particularly in an election year when the government has numerous long-term projects in progress.

What do you make of the latest GST collection data for August?

The recent GST collection data exhibits robustness with an 11 percent growth rate, albeit slightly below consensus estimates. However, we must exercise patience and vigilance, waiting for sustained data trends to emerge before forming definitive opinions. Analyzing multiple data sources and their dependencies is essential for developing informed views of the future and assessing their likelihood. Our outlook remains optimistic regarding the Indian economy, both in the short and long term.

Do you see interesting opportunities in the consumer and pharma segments?

Regrettably, the valuations in most consumer-oriented sectors appear overextended, limiting their potential for superior long-term returns. We find more favourable prospects in the automotive sector and can identify a few promising opportunities by creatively exploring the entire value chain and examining upstream, downstream, and ecosystem components.

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Investors may discover well-established US companies with higher growth rates, more attractive valuations, and a substantial market share presence in India. For instance, US-based digital advertising platforms dominate the advertising market in India, providing exposure to both Indian and global markets. Therefore, diversifying one's portfolio globally may be a wise strategy, and Indian consumer companies may become attractive when their valuations offer a significant discount to intrinsic value.

Regarding the pharmaceutical sector, we continuously evaluate its potential. However, the current fundamentals, growth prospects, and valuations do not appear to offer the most compelling opportunities in the market. Nonetheless, the pharmaceutical sector may present a marginally more appealing combination of these factors compared to the overall market.

Are you bullish on the industrial space?

Yes, we maintain an optimistic outlook on specific industrial sectors, including manufacturers in railways, defense, power, automotive, and electric vehicles. These industries stand out due to their fundamental strength, exposure to future growth trends, and attractive discounts to intrinsic value.

Do you think inflation concerns persist in the Western world?

Central banks, including the Federal Reserve, remain vigilant regarding inflation concerns, with no intention of easing their focus on this matter. This approach helps establish expectations of future central bank actions and lower long-term inflation rates. Maintaining this stance is crucial for central banks. Nevertheless, data indicates that inflation is gradually coming under control, and the Federal Reserve may find itself needing to reduce interest rates in 2024.

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Some experts believe China's growth may surpass India's in the coming years, despite current underperformance...

Our viewpoint diverges from those suggesting that China's reported growth figures accurately reflect its economic reality. Some experts argue that alternative indicators, such as light intensity data, suggest that China's GDP may be significantly lower than officially stated. If these assessments prove accurate, the actual situation in China could be far worse than commonly perceived.

Additionally, China's notably high Debt-to-GDP ratio poses a substantial cause for concern. We anticipate that the future holds slower economic growth for China, primarily due to the long-term consequences of the one-child policy, which has resulted in a significantly lower birth rate. While short-term economic growth can be temporarily boosted through monetary and fiscal policies, these measures often lead to adverse consequences in the long run.

The global trend of reshaping supply chains to reduce dependency on China could exert additional pressure on China's future growth prospects. Considering both internal and external factors, a more conservative outlook on China's future growth appears prudent.

Are midcap and small-cap stocks primarily receiving support from domestic investors, rather than FIIs?

Indeed, midcap and small-cap stocks tend to attract greater interest from domestic investors during the initial stages of a bull market. Foreign Institutional Investors (FIIs), being institutions, allocate substantial capital, often focusing on large-cap and highly liquid companies.

As a result, early phases of a bull market typically witness increased domestic investor involvement in mid and small-cap stocks. However, as the bull market matures, FIIs may explore opportunities in mid and small-cap stocks with higher liquidity or significant growth potential.

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.