The September quarter corporate earnings, so far, have been inline or better than expectations. The market reaction has been positive, an indication of confidence in economic revival in the coming quarters, says Anil Sarin, CIO, Equities, Centrum Broking, in an interview to Moneycontrol's Sunil Shankar Matkar.
Q) Auto companies seem to have done well in the festival season and the market has already reacted. Is it time to pick auto stocks?
A) The price movement in the auto sector has been quite steep, which adequately discounts the expected revival. The recently concluded festive season was good for the sector, especially in the 4-wheel segment that saw aggressive pricing adopted by many players. Since the run-up has been high, we would like to wait and watch at these levels.
Q) How do you read the earnings season? Do you think the worst is behind us?
A) Corporate results, thus far, have been in-line or better than expectations. The market reaction has been positive. This indicates confidence in economic revival in the coming quarters. Possible negatives can come in the form of fresh delinquencies in real estate, power and telecom sectors. Aside from these negatives, one can say that the worst is mostly over.
Q: Given the government’s initiatives to revive economy, largecaps rallied quite sharply but the same trend was not seen in broader markets. Time to buy midcaps and smallcaps?
A) Rather than looking at market capitalisation, it will be better to look for companies with lesser default and insolvency risk, comfortable interest-payment capacity, rising market share, growth opportunities in the industry, and last but not the least, valuation. If all these factors are in your favour then it makes sense to invest at this time. We believe that on a relative basis, there are more opportunities in the midcap and smallcap space, but only in those companies that satisfy the above criteria. As such, this is a very good time to selectively invest in high-quality midcaps and smallcaps.
Q) Are the steps taken by the government enough to revive the economy? What more do you expect from the government and the RBI?
A) Supply-side factors have been well addressed, some demand-side incentives will surely help. Some industry-specific help (for real estate and NBFCs) would go a long way in reviving the economy. Also, any tax cuts, if announced, would add further impetus to a revival.
Q) Major banks reported improvement in asset quality and most experts feel the FY21 could be strong. Do you think the worst in terms of asset quality is over?
A) Yes. However, maintaining asset quality post a demand slump is always challenging. We foresee potential NPA risk in telecom, real estate and power segments.
Q) Which are the top three sectors that can generate multibaggers in the next one year?
A) Real estate, staffing and internet-related businesses would be good sectors to back at this stage.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.