Suresh Soni, CEO at Baroda BNP Paribas Mutual Fund, sees the Indian economy is on course to gradual recovery and there's no major correction looming on the equity markets.
At this point of time, the asset management professional seasoned for over 25 years, prefers domestic stories over the export-oriented ones, given the uncertainty in global growth outlook. "In the domestic space, we are positive on three Cs – consumer, capex and credit," he says in an interview to Moneycontrol.
In BFSI space, Baroda BNP Paribas Mutual Fund is increasing its exposure to large banks as Suresh believes that the impact on margins because of higher cost of deposits can be offset by operating leverage with higher growth by larger banks.
Excerpts from the interview:
Do you think domestic pharma companies with PLI approvals look interesting now?
The production linked incentive (PLI) scheme is a good initiative from government in general. It could help the sector in terms of higher R&D and become globally competitive. PLI can pave the way for the self-reliant pharma sector and help the government's larger vision of Atmanirbhar Bharat. At the same time, one must be selective as it increases domestic competition as well.
Any major cause behind the ongoing consolidation in equity markets? Do you see any major correction before a sharp run-up in the coming months, considering the global development?
The major cause of ongoing consolidation is higher inflation around the world and for India as well. Also, ongoing rural slowdown for India has taken its toll on overall growth as well.
However, inflation is coming under control globally, led by proactive actions from various economies.
We also see commodities cooling off as a breather for the Indian economy, while overall valuations, too, have come down for the Indian stock markets. Hence, we see the economy on a gradual recovery path and don’t see any major correction.
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Is the ongoing corporate earnings season in line with your expectations?
Overall corporate earnings have been in line. We saw some impact on demand due to higher inflation in consumer staples, discretionary and durables sector. However, the margins looked up due to softer commodities.
Few pockets like auto/auto ancillaries and financials have put up a better performance. Capital goods, too, have fared better. Hence, we do not see a significant cut in corporate earnings.
Are you pairing down or have you paired down your positions in any sector, especially after the March FY23 quarter earnings season?
We have been reducing our exposure in the IT sector on the back of continuing slowdown in the sector but being selective as well. And, in the BFSI sector, we are increasing exposure to large banks as we believe that the margin impact due to higher cost of deposits can be offset by operating leverage with higher growth by larger banks.
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Which sectors give you a strong conviction about robust earnings growth going ahead, after the FY23 earnings?
At this point of time, we prefer domestic stories over the export-oriented ones, given the uncertainty in global growth outlook. In the domestic space, we are positive on 3Cs – consumer, capex and credit.
On the consumer space, we are expecting benefits of lower input cost translating into margin improvements across staples as well as consumer discretionary. While urban demand has been robust, there are initial signs of recovery in rural India, though we will be watching out the spread and timing of the monsoons.
On the capex side, we see a confluence of factors coming together which makes us believe that the capex cycle could be sustained in the medium term. We see positive triggers coming from government expenditure, revival in private capex, PLI-led manufacturing renaissance, and China-plus-one sourcing strategy adopted by global players.
Lastly, as the two engines of consumption and investment deliver, this could necessarily lead to a robust credit growth.
What is your strategy behind the newly launched value fund?
Value investing is about identifying and investing in stocks that are under-priced or are at a discount to their intrinsic value. The reasons of value are many but some of it can be like over reaction by market participants or temporary issues related to company which could bring value opportunities across markets, sectors, and stocks.
Do you see contraction in net interest margin for banks in the coming quarters?
There could be a bit of contraction in net interest margins with the cost of deposit going up. However, larger banks would be able to offset the same with higher growth and operating leverage as I mentioned earlier.
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Are the valuations elevated in the capital goods sector?
The capital goods sector has seen a decent appreciation over the last 12-18 months on the back of higher government capex, good order book and softer commodities and we believe the sector would continue to report good earnings based on above parameters.
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.
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