Large-cap stocks like Infosys and HCL Tech are our top picks. In mid-caps, we continue to like MindTree, Naveen Kulkarni, Chief Investment Officer, Axis Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:
Q) What will be the biggest risk for investors in the second half of 2020?
A) The biggest risk for the investors in the second half of 2020 is further lockdowns and challenges to economic recovery. The market is factoring in normalization as the stock prices have moved up and valuations are breaching the long-term average levels.
However, localized lockdowns have continued which is preventing the economy from coming back to normal levels.
Also, the market is factoring in that vaccination will be available soon but it is difficult to figure the timelines and delays are likely.
So, the second half has significant risks posed from an operational perspective for economic activity.
Q) What is your call on the IT sector? This has been one of the better-performing sectors amid the lockdown. Where is the value?
A) The IT sector was expected to normalize faster because of the export nature of its business, dollar appreciation tailwinds, and work from home advantages.
However, the IT sector performance has exceeded even these expectations with Infosys reporting brilliant performance across the board. We see value across the sector at this point.
Large-cap stocks like Infosys and HCL Tech are our top picks. In mid-caps, we continue to like Mindtree
Q) One evident trend was the new race of investors who joined D-Street despite sharp volatility. Do you see any specific trend?
A) This is a very difficult phenomenon to judge as restrictions imposed by the lockdown are temporary in nature and as the situation stabilizes, there could be further changes.
The new age of investors is aggressive but the sustainability of such a trend depends on multiple factors. Some traders will remain in the market, but as the volatility subsides, normalization is more likely.
Q) What is your call on Agricultural space? It is one sector which has remained unfazed from the COVID? What are the top stocks which one can look at?
A) Agri and the rural sector have had a very limited impact of lockdown and even the stocks are reflecting that. However, the valuations have also moved up in the sector quite significantly.
We continue to like Dhanuka Agritech, Coromandel, Escorts, Hero motors, and Dabur which will see a significant positive impact on account of robust rural demand.
Q) Growth is likely to take a hit this is given, but how can equity investors turn the falling GDP scenario into a benefit? Which sectors are likely to see a rebound once the tide reverses?
A) Retail and Automobiles are high beta sectors that are likely to see a significant turnaround as the situation normalizes.
Retail should see improvement in traction as pent up demand will help while there could be an increase in demand in the auto sector as a preference for personal vehicles versus public transportation could be an interesting trend.
Q) What is your outlook on the auto and financials -- the two themes which have seen the worst of COVID impact? Can they turn out to be the dark horse of 2020?
A) The outlook on financials continues to remain constructive. The HDFC Bank results indicated that the stress in the sector could be much lesser than expected and the sector could see a faster turnaround in the future.
Quality as a theme will continue to dominate. Auto as we indicated above will take time, but even in an automobile the two-wheeler and tractors continue to perform very well.
PVs are likely to pick up in the forthcoming quarters. So, financials are likely to gain traction and even in PVs, Maruti is likely to be a dark horse. CVs will take longer to revive and we maintain underweight outlook on CVs at this juncture.
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