Kotak AMC Managing Director Nilesh Shah has a mixed view on the March quarter earnings. He is impressed with profitability in sectors like banking but thinks that the consumption segment has fallen short.
In an interview to CNBC-TV18 on May 25, he shared insights into Q4 earnings and also talked about probable outperformers. Edited excerpts:
Your thoughts on Q4 earnings and your outlook for this financial year?
We have witnessed impressive profitability in sectors like banking, while consumption sectors have fallen short of expectations. We anticipate that future trends will be sector and company-specific. Sectors like IT, pharma, and consumption may be affected by global and local factors. Banking, due to its higher base, may experience subdued growth, although the absolute numbers will still be impressive. Notably, this financial year marked the first time that the aggregate profit of India Inc crossed 10 lakh crore.
Why are DIIs selling and what are the themes and sectors they are uncomfortable holding at current levels?
There are three factors contributing to DII (domestic institutional investor) selling. Firstly, is non-active non-directional funds, such as arbitrage funds, if investors redeem, we need to sell in the cash market.
Secondly, selling occurs in balanced advantage funds, which are influenced by market valuations. The size of these funds is approximately over Rs 2 lakh crore.
Lastly, active and passive funds are influenced by investor flows, shaping our views accordingly.
Domestic mutual funds have not increased their cash balances, as we maintain a 5 percent cash allocation to meet redemption requirements.
Have the inflows in equity mutual funds picked up in May?
At an aggregate level, retail investors have demonstrated great maturity. We have observed SIP subscriptions increase when markets are lower and vice versa. This disciplined approach contributes to lower volatility in the Indian markets.
What would be the top three themes from an investment viewpoint?
Firstly, the manufacturing theme appears to be gaining momentum. Manufacturing companies and promoters have provided reasonably bullish arguments for the "China + 1" strategy.
Secondly, the banking and financial services sector is thriving. Margins are at nearly all-time highs, while NPAs are at nearly all-time lows. It's an opportune time for bankers.
Thirdly, the infrastructure sector shows promise. In this budget, the government has allocated Rs 10 lakh crore to accelerate growth ahead of the next elections.
In a bottom-up market, we anticipate outperformance in these three sectors.
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