Banks, agrochem reasonably valued, building material could see demand, says Mirae's Gaurav Misra

March is typically a weak month for the stock market as retail investor and HNI participation drops because of year-end factor. Many were expecting the flow into small and midcap funds to persist and nobody thought the funds themselves would put the brakes on inflows. That must have upset many market players’ calculations but frankly, when something gets so valued, there will be some reason that will emerge for it to correct a bit.

Were you doing a stress test before it became mandatory?

We have our own ways for checking participation in volumes, what would be the number of days to exit individual positions. We don’t have a small-cap fund as such, other funds are a mix of large-cap, mid-cap, and small-cap.

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The market is correcting but SIP inflows are strong. Where would you be looking to put money?

Banks can absorb money as they are in a reasonable valuation space. Valuations are also reasonable in smaller sectors like telecom, agrichemicals, and some parts of the consumer sector.

What makes you positive about telecom?

It is a consolidated sector where there are only two players now. They have not taken any price hikes for two years, and after the election they might hike prices to drive better-than-expected margins and earnings. Plus, it is a fairly stable sector and a utility, so demand is always high. Valuations too are reasonable.

What about agro-chemicals?

Speciality and agro-chemical companies have been doing a lot of capex in the las few years. Of late, headwinds over inventory de-stocking, high interest rates, oversupply from China have contributed to consolidation in the sector and we are not sure when the tide will turn. There is always a constant demand for agro and speciality chemicals because crops needs it and there is a China plus one factor at play as well which can provide a leg up for the space.

Do you see signs of private sector capex picking up? Especially since the government is now cutting back on its capex?

It is definitely underway right now and Government’s incentives such as lower tax rates and production linked incentive (PLI) schemes have spurred private capex. But is it enough to make up for the government’s withdrawal in the next two-three years? That is the question. Capex in spaces like auto and consumers among others is visible. The bigger private capex in heavy-duty sectors that could move the needle like power, metal, mining and oil and gas is yet to come by. Even if the government capex fiscally consolidates, they’re not going to backtrack on infrastructure spending. Capex will grow but the pace will slow down.

Also Read: MF Stress Test: Why it matters and should investors be worried?

Any particular sector you are betting on?

Building materials could do well as the real estate cycle is underway and at some stage there should be demand for building materials, especially those that go in at the later stages.

Your view on metals and mining?

We are broadly underweight on the sector. We don’t get full representation of the sector in metals such as copper and others which go in the renewable energy space. Outlook for pricing in metals is a function of global growth. China is a big player across commodities and I do not think their growth will be very strong, so there is limited upside in base metals. However, in iron and steel there could be domestic demand-led volume growth because of construction activity, with not much upside to margin expansion.