Daily Voice | This market strategist sees opportunity in healthcare, BFSI, auto, and consumption

There are no sure things. Let's take a look at Nifty valuations as our guiding light. Nifty is likely to cross Rs 900 in trailing twelve month (TTM) earnings per share (EPS) in the next two to three quarters. Historically the index has traded at an average multiple of about 20x trailing EPS which means the average price to earnings (PE) for Nifty over the last 15 years is around 20 times.

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So at Rs 900 of EPS, Nifty is likely to see its fair value creeping towards 18,000 level. If the index were to revisit the lows of 15,000 then it would begin trading below 17x its earnings which would make it really attractive. These numbers tell us that June lows appear to have sound valuation comfort even if they were to re-emerge. The earnings growth and high frequency data suggest that equity markets may remain resilient for the time being.

Do you think we still have to be cautiously optimistic on the market given increasing concerns about European economies and China, and increased geopolitical tensions?

We are optimistic about the future prospects of Indian businesses. There are always uncertain outcomes -- part and parcel of the market. At this juncture, markets are focused on earnings growth momentum which is likely to continue.

We are always cautious and pessimistic about our projections but not about the prospects of Indian businesses. It’s important not to overpay but at the same time continue to reap benefits of great businesses compounding our investments overtime.

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In uncertain times, what is the best strategy one should adopt and what are the themes one should pick for healthy returns?

It really boils down to only two things when it comes to stocks. Don't overpay, don't buy bad businesses. Assessing these two aspects are the most difficult. In uncertain or rather more volatile times, these rules become even more important. At this point, we believe there is opportunity in healthcare, BFSI, auto and consumption stocks.

Consumer price index (CPI) inflation has been declining on a sequential basis after hitting multi-year high in April. But do you see any major threat to inflation in coming months?

The data that we are tracking indicates a gradual decline in inflation over the next six months. Three key drivers of inflation, globally and in India, seem to have peaked. Crude oil prices, agri commodities and housing market - all three are now beginning to normalise. This means inflation, which is the talk of the town today, will matter less and less as we move into the next financial year.

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Do you expect major margin expansion in the automobile space from the second half of FY23? Also has the space already priced in expected margin expansion?

There has been a sharp uptick in auto sector stocks which has priced in a strong business recovery. Margins are likely to expand over the course of the next few quarters and part of it is already priced in. However, we see this as a long term cycle which should run for the next few years. With a focus on valuations, we are continuously scouting for opportunities in this space.

Is it a better time to start accumulating capital goods stocks given the strong order pipeline?

We have been focused on this space for a long time. It is a much broader space than the traditional capital goods sector. With a number of industries beginning to see steady growth, like gas distribution, fast moving industrial goods, infrastructure and construction, and a revival in real estate market, we expect the core economy to do well over the next few years.

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