"Exports continues to be a problem area for auto companies as key markets in Africa face demand issues. This could take a few months to resolve," Nirakar Pradhan, the WealthBasket Curator, Founder & Chief Investment Advisor at Finkasturi Nivesh told Moneycontrol in an interview.
On the contrary, he believes domestic demand remains strong especially for four wheelers with new model launches and a robust order backlog. So, it is advisable to stick to domestic market focused companies currently, the CFA Charter holder said.
Pradhan, who has over 35 years of experience in finance and investments, believes with margins improving and stable asset quality, banking sector should continue to do well.
Cement is another sector where tailwind of strong demand and falling input prices should lead to a robust financial performance over the next few quarters," he says. Edited excerpts:
Even after recent corrections, do you think Indian market is still expensive? What is your strategy for the domestic market?
The relative valuation of Indian markets has become reasonable after the recent corrections. Also, compared to its historical average price to earnings multiple, Nifty50 is trading at a fair level.
Indian markets have always commanded higher multiple owing to better economic growth and corporate earnings trajectory. This structural advantage of India continues to attract both foreign and domestic investors alike. Thus, we remain bullish over long term on Indian equity market.
What is the key risk factor weighing on market sentiment now?
Any event leading to global risk off scenario remains the key risk factor for our markets. Growth-inflation dynamics remain distorted in many developed countries including USA. A sharp hike in interest rates by central banks leading to economic mishaps act as a key concern at this moment.
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Are you cautious on staples given the slowdown in consumption?
There has been a slow down in rural consumption for some time now. While strength in urban consumption continued for better part of last year, it has also started showing weakness over last few months. As the demand scenario for consumer staples companies remain weak, we remain cautious on this space. However, some green shoots are emerging on margin front as prices of certain agri commodities have fallen of late.
Do you advise market participants to focus on auto players with focus on the domestic market instead of exports?
Exports continues to be a problem area for auto companies as key markets in Africa face demand issues. This could take a few months to resolve.
On the contrary, domestic demand remains strong especially for four wheelers with new model launches and a robust order backlog. So, it is advisable to stick to domestic market focused companies currently.
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Do you expect further slowdown in economic growth in coming quarters?
Indian economy is expected to post slightly lower growth next year owing to slowdown in consumption amidst a high interest rate environment. However, with an expected growth rate of around 6 percent in FY24, Indian economy will still be one of the fastest growing major economies in the world.
While most of the developed countries are battling with high inflation and low growth scenario, India stands out with its better growth-inflation dynamics.
Which are the sectors/themes to focus on, now?
We recommend being in sectors where earnings visibility is strong over next few quarters. With margins improving and stable asset quality, banking sector should continue to do well. We have seen both order inflow and margins expanding for capital goods sector after a long time, so we remain positive on that too.
Cement is another sector where tailwind of strong demand and falling input prices should lead to a robust financial performance over the next few quarters. Also, owing to impending power shortage situation in India, power utilities sector looks to be in a good spot.
Is it a better time to bet on banking, NBFCs stocks?
For last few quarters banking and NBFC space has been doing well. Net interest margin has expanded to multi-year high as sharp rate hikes by RBI has been passed on to consumers. At the same time credit growth remains high above 15 percent. Also, asset quality seems to be doing okay so far. These factors should favour banking sector for another 2-3 quarters.
Towards H2FY24, we expect spread improvement and credit growth to normalise for banks due to impact of hike in deposit rates and slowdown in economy respectively.
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