Gautam Chhaochharia said the house recommends being an underweight on the IT services sector.
After being cautious for the last five years, we have turned constructive and positive on the earnings growth cycle in India, at a broader level, said Gautam Chhaochharia, MD and head of India research at UBS Securities.
“We have used our unique framework, and from that framework of turning positive on the earning cycle in India, obviously that should be supportive of the broader markets, which includes small midcaps from one-three year perspective. The near term is always tricky because we still haven’t seen a visible earnings cycle come back but we are hopeful and expect an inflection cycle ahead for earnings,” he said.
“The next one-two quarters could still be tricky, but when we are talk about inflection cycle and earnings, we are not talking about one-two quarters but the next cycle. Using our framework. we have been earnings growth bears, in India, for last 5 years and now in the same framework, we see signs, which will support inflection cycle for the next one-three years,” Chhaochharia said in an interview with CNBC-TV18.
From a portfolio allocation perspective, he said the house recommends being an underweight on IT services sector as it could face headwinds in terms of demand. We also expect some earnings cut going ahead, he added.
The fund house was neutral on the auto sector. "Our auto analyst is still not constructive on many of the individual names and that’s why we call them ‘dark horses,’ because the near term visibility is still very clouded, while they could benefit from the broader earnings inflection cycle. So, though the visibility is not clear from a 6-12 month perspective, they could be a dark horse from 1-3 year perspective,” he said.
According to him, financials would be the biggest beneficiary of a recovery.
“The other big space for us is property, and then we would back the industrials and small midcaps of the broader market because that is where a lot of value is and that is where the impact of broader inflection in earning cycle would be felt much more,” Chhaochharia added.Source: CNBC-TV18
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