Daily Voice: Two-wheeler segment to outperform CV and PV sectors, positive on export-oriented sectors, says LIC MF's Nikhil Rungta

The financial sector has relatively underperformed compared to the broader market, yet recent quarterly results indicate strong earnings growth across most segments, except for public sector banks. Given the sector's strong fundamentals and reasonable valuation levels, there is a distinct possibility of outperformance in the next 12 months. However, slowing credit growth, relatively weak deposit growth, potential asset-liability mismatches, and a likely increase in non-performing assets may temper earnings growth for banks and other financial institutions. Consequently, expecting most of the financial sector may perform in line with the market over the next year. Our outlook is positive on asset management, insurance, and wealth management firms.

Is the two-wheeler space looking relatively better compared to commercial and passenger vehicles?

Yes, the two-wheeler segment has significantly outperformed the commercial and passenger vehicle sectors in recent months, both in terms of fundamental performance and price appreciation. This trend is expected to continue in the near future, as the two-wheeler segment benefits from favourable demand dynamics and market conditions.

Your top bets among sectors and why?

Despite a mixed performance across consumption-driven sectors in the April-June 2024 quarter results (Source: NSE) —with autos and durables showing growth while FMCG and retail underperformed—remaining positive on consumer-related stocks. In contrast, investment-related sectors such as capital goods, construction, real estate, and cement are fundamentally strong but appear to have built-in high expectations in both earnings and valuations. Additionally, holding a positive view on export-oriented sectors such as IT and pharmaceuticals.

Should one keep accumulating pharma space?

I have a positive outlook on the healthcare sector. However, given the significant differentiation in business models and product lines within the pharma space, a top-down investment approach is challenging.

Do you expect SIP inflow to equity market remain unstoppable?

While nothing in life or the stock market is unstoppable, there are compelling reasons to believe that SIP inflows into equity mutual funds in India may continue robustly. First, despite market volatility, SIP inflows have been rising steadily since 2016, indicating that Indian households recognize the value of systematic, long-term equity investment as a wealth creation tool. This growing financial literacy is likely to sustain SIP flows in the coming years.

Second, while equity allocations have increased, the proportion of equity-linked instruments in Indian household portfolios remains around 15 percent (Source: RBI), just half the global average. As Indian portfolios align more closely with global norms, expect equity allocations to rise, further boosting SIP inflows. Bank deposits still account for more than double the share of equities in household portfolios. With rising financial awareness, anticipate a continued shift toward equities, which may keep SIP flows strong.

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