"Given that much of the increase in commodity prices has taken place in the second half of the quarter, we do not expect a significant impact on margins in Q4 as companies will be running down inventories," Shiv Chanani, head of research at Elara Securities India, said in an interview to Moneycontrol. However, investors will be interested in listening to the management commentary about the next quarter's outlook, he added.
Elara is positive on the BFSI space as it believes that the twin factors of rebound in credit growth and sustained low credit cost would drive earnings growth in the sector, says Chanani, who has more than two decades of experience in equity research and fund management.
How do you approach the equity markets shifting focus from geopolitical tensions to corporate earnings and US Fed moves?
The market has been able to climb the wall of multiple worries ranging from geo-political issues to Fed tightening to continued challenges in supply chains. In this context, we believe that it is better to take a bottom-up approach and stay focussed on sectors or companies with better visibility of earnings drivers and free cash flows.
Do you think the Reserve Bank of India and governor commentary will give a hint about rate hikes given the expected inflation concerns or will the RBI prefer to stay behind the curve and focus on growth? Do you expect any rate hikes in FY23?
We expect India's central bank to continue being growth supportive. Nevertheless, given the current inflationary environment and movement in yields, some rate hikes may be warranted. We expect policy rates to move up by 50-75 bps in FY23.
Also read | The RBI should change its stance to neutral, with inflation broadening out in India: Nomura’s Sonal Varma
What could be the biggest risk as we begin financial year 2022-23?
We are looking forward to a significant bounce-back in consumption following the last two years' subdued performance. At the same time, we are also expecting a revival in the capex cycle. Both of these could be impacted if the rise in interest rates is steeper than expected.
The March quarter earnings season will start this month. Do you think it will be a tough quarter for the majority of sectors and do you expect more downgrades after several quarters of upgrades?
Given that much of the increase in commodity prices has taken place in the second half of the quarter, we do not expect a significant impact on margins in Q4 as companies will be running down inventories. However, investors would be interested in listening to the management commentary about the next quarter's outlook.
We believe that a large part of the up move in commodity prices could be retraced if geo-political situations were to ease in the near term. Further, some of the input price pressure could be absorbed by higher operating leverage, should the volumes surprise positively. Consequently, given the offsetting factors, we do not see any risk of a significant earnings downgrade.
With the opening of the economy, lots of stocks including travel, tourism, and hotels have registered strong performance in the last few months. In fact, some of these stocks have reached their pre-Covid levels. Do you still think it is the time to bet on some of these segments?
Out-of-home consumption sectors are witnessing a strong rebound in demand. The supply response in some of the segments, like hotels, cannot be immediate, which puts the incumbents in a sweet spot. We expect the strong demand momentum to continue and expect earnings to surprise on the upside.
Several analysts are saying there is a value in the banking & financials space as they are looking cheap now. How do you approach the segment, especially when some analysts are expecting few rate hikes in the latter part of FY23?
We are positive on the BFSI (banking, financial services and insurance) space as we believe that the twin factors of rebound in credit growth and sustained low credit cost will drive the earnings growth in the sector. Within this space, we prefer the PSU bank segment on account of higher operating leverage and favourable valuations.
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!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
