In the auto space, from here on, "companies which are able to gain market share and protect margins will do well," Harini Dedhia, the Portfolio Manager and Head of Research at Tamohara Investments says in an interview to Moneycontrol.
So she feels large upsides in auto space in near term is unlikely.
With more than 10 years of experience in the capital markets, the chartered financial analyst believes real estate ancillaries and luxury themes are likely to do well. "Real estate cycle is coming out of the woods after a long time and volume growth is picking up all across the country."
Q: Do you think the risk is building in the midcap and smallcap segments, especially after significant run up in the recent past quarters?
Mid and small caps have always been the riskier asset class in equities. Given the sharp run up, and valuations being far above mean versus its own history and versus large caps, caution is advised. In this context, one has to be very selective in taking incremental exposure.
Domestic inflows in mid and small caps are strong, so large drawdowns will be limited. However, broader rally in this will be subdued while select pockets will continue to do well.
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Q: Are you increasing exposure to any segment in the auto sector?
We were overweight in autos for the better part of the last 2 years. We have reduced our exposure as we believe cyclical volume recovery in most segments is back to mean levels and so are margins.
From here, companies which are able to gain market share and protect margins will do well. So large upsides in near term is unlikely. We continue to hold select auto ancillary and proxy auto plays.
Q: What is your reading on the outcome of the RBI Monetary Policy Committee meeting and the commentary by the RBI Governor?
Nothing new given policy rates remained unchanged. Also, it partly depends upon what is happening with federal fund rates in the US.
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Q: Do you expect the possibility of interest rate cut in the first policy meeting by US Federal Reserve in next calendar year?
We believe in being directionally correct rather than being absolutely wrong. In that spirit, we know rates should head lower, directionally, next year. Whether in the first or the second meeting, we won’t like to speculate on.
Q: Is the banking sector balance sheet looking best in the last 10 years?
It is better than it has ever been for the banking sector overall. Growth and margins are above average , while credit costs are at a cyclical low. In our view, margins will correct and credit cost will normalize from such lows levels in FY25.
However no signs of any large risk building in despite large growth in the unsecured book of many banks. Valuations of the sector at large are reasonable and remain attractive.
Also read: RBI MPC: Comfortable tone amidst a comfortable backdrop
Q: Are the valuations attractive enough in the power and power ancillary space?
Power sector valuations have got re-rated as power capex is picking up pace after a decade and renewables push from the government. Given the sector is 2-3x from covid lows and many stocks are up 5-7x, we are cautious. While earnings growth visibility is high in FY25 and FY26, a large part of the growth is discounted.
Q: Your top two themes to bet on for 2024?
Real estate ancillaries and luxury themes are likely to do well. Real estate cycle is coming out of the woods after a long time and volume growth is picking up all across the country. So real estate proxies will do well despite decent performance in CY23. Also we believe luxury plays all across sector will do well – it may be in autos, housing, and personal consumption.
Q: Are you a fan of oil marketing companies (OMCs)?
Difficult to take long term fundamental calls in OMCs as their fundamentals are linked to Indian macros and oil prices. This sector does well when oil prices are sub $70-80 a barrel and the government fiscal position is reasonable. Current rally is on the back on oil price corrections, stable GRMs (gross refining margins) and below-mean valuations.
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