'Samvat 2076 could mark the beginning of India's consumption story'

As the risk appetite returns, the market participants would look at the mid and smallcaps given that the space consists of some excellent companies at attractive valuations, Pankaj Bobade, Head – Fundamental Research at Axis Securities, said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) Consumption and auto companies are finding buying interest at lower levels. Is this festive cheer or investors are bottom fishing?

A) Yes, we have seen a good rally ahead of the festive season in the consumption, as well as, automobile companies due to festive buying expectations. Just the sheer size of the young population makes consumption story in India a robust one.

It is an all-weather growth story amid signs of a slowdown in this segment, but that is not very alarming at this stage. The festive season being a historically strong quarter for the consumption sector has led to recent buying.

As far as automobile companies are concerned, they have been battered in the past year due to various reasons like BS-VI transition, demand slowdown, credit availability issues, etc.

So, from a valuation perspective, several companies look attractive and the month-on-month expansion in volumes of all major OEMs was the triggering factor for the rally.

However, the automobile sector is not yet out of the woods and its sales trend for the coming months should be closely watched. This space can be a good contrarian bet with a 3-5 year view.

Q) Nifty is up about 10 percent from last Diwali. It has been a roller coaster ride for investors in the last year – record highs which were followed by a selloff. Can we say that testing times for investors are over, at least for now, or is there more pain left?  

A) Investors are definitely much closer to getting out of the testing times than say a quarter ago and there should be lesser pain going ahead. This is due to the fact that there has been a clear recognition of the demand slowdown and a categorical effort from the government and RBI to revive demand.

Recent policies (both fiscal and monetary) auger well for investing in Indian equities for the long-term. The government is also trying to divest its ownership in PSU’s and is continuously working to improve the ease of doing business.

The intent of the government and RBI has been well received by investors and this could very well be the start of the next rally. In another quarter or so, we can expect to have a much better sense of how the policies have affected demand and whether the testing times are over.

Q) Large caps had a good run in Samvat 2075, do you think that Samvat 2076 could belong to the small & midcaps?

A) Well, one way to look at it is that the broader market has seen unprecedented slowdown for nearly two years now and the cycle now seems to be bottoming, a simple cyclical reversion to mean could give handsome returns in broader markets as compared to large caps.

Largecaps provided an avenue for safety in these testing times despite stretched valuations.

As the risk appetite returns, the market participants would look at the mid and smallcaps given that the space consists of some excellent companies at attractive valuations. Good quality mid and smallcap stocks are very likely to outperform largecaps in the coming future.

Q) What is your view on markets for the next year or Samvat 2076?  

A) We are of the opinion that the policy effect, especially corporate tax would bring in foreign investment both in terms of FII and FDI inflows in India in a big way and also the ongoing trade war presents an incredible opportunity for India to become a strong manufacturing hub.

The government probably may double up on its reforms agenda by introducing land and labour reforms to support the corporate tax cuts for companies. All these measures would attract investments in the manufacturing sector, thus supporting employment and consumption.

These factors would make Samvat 2076 a start point for long-term consumption story of India fuelled by fiscal and monetary expansionary policies

Q) Which are the sectors that investors can track for the next year?

A) Private & retail banks and IT have led earnings on India Inc amid slowdown concerns and commentary is positive in these pockets.

A good harvest season post good monsoon season is expected and likely to push consumption story in India led by increasing rural spends.

Also, with the government's focus on infrastructure and private investments supported by the opportunity provided via tax cuts may bring capex recovery which would be beneficial for the capital goods sector.

These are some of the spaces that investors should track for the coming year. Automobiles and ancillary sector also look good as a contrarian strategy with good risk-reward metrics.

Q) Diwali is a day when we start something new – is there any advice which you would like to share with readers with respect to portfolio management?

A) Investors should be prudent while choosing stocks and be clear on the factors as to why they are choosing a particular stock or sector.

They should select strong fundamental stocks with quality management and invest in a staggered manner over various price points.

Investing through the SIP route or systematic investment plan is also a good option at the moment as it will help them in averaging the cost, and at the same time reduce the risk of timing the market.

From a portfolio perspective, a well-diversified portfolio with exposure in 5-7 sectors and 15-20 very good quality companies with a quarterly review of the stock in portfolio is the best way of portfolio management.

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