Bullish auto, cement, oil & gas, says Kotak MF‘s Upadhyaya

“We have seen some normalization; hopefully, when the entire cash situation normalises, you will see better numbers,” he said.

On cement, he feels a combination of firm prices and good demand should benefit companies in the sector.

“There are no significant fresh capacities coming up and at the same time initiatives on affordable housing or focus on new construction/infrastructure build up are likely to continue. These are all adding to the demand,” Upadhyaya said.

Currently, cement companies are not operating at full capacity. When demand improves, the companies will be able to increase production without significant addition to operating costs. This in turn will boost profits, Upadhyaya said.

As for oil & gas, he feels the sector is completely insulated from the effects of demonetisation in the short term.

“We believe that fundamentals have really changed in these businesses; also, government interference has stopped,” said Upadhyaya, who has over two decades of experience across equity research and fund management.

“There is no subsidy in most of the products and in the products where there are subsidies it is already on the way out. The balance sheets of OMCs (oil marketing companies) have improved significantly.

Also, there are initiatives on Clean India, Green India; which is helping businesses like City Gas Distribution or LNG imports,” Upadhyaya said.

The fund house is bearish on information technology as Indian companies are losing pricing power. Also, the sector could hurt from the US government’s tough stance on H1B visas and anti-outsourcing.

He says Indian IT companies need to reskill their employees or make a meaningful acquisition which will give them a foothold in some of the digital businesses.

The impact of demonetisation on business activity is still not clear, Upadhyaya said.“On the domestic front, we have Budget, which is coming in another three weeks; and then we have UP elections. So, market will be dependent on how some of these events pan out,” Upadhyaya said.

The government will present the Union Budget 2017-18 on February 1, and the UP polls will be held from February 11 to March 8, 2017 in 7 phases.

Among global triggers, US interest rates, Brexit impact and Trump’s economic policies will be the key sentiment drivers, he said.

Upadhyaya feels domestic business should be able to overcome the aftershocks of demonetisation by end of this fiscal. He is betting on an earnings recovery June quarter onwards.

A hockey enthusiast, Upadhyaya expects the market to be range-bound in the first half of 2017 and start gaining in the second half.

“We believe FY18 there will be decent earnings growth which is also get supported by lower interest cost in the economy.

Interest costs have come off quite rapidly in the last 12-18 months. So that positive effect on profitability will also come in,” said Upadhyaya.

“We expect some policies from the government to revive consumption as well as job growth that should help many of the businesses. That is where we believe that FY18 should be much better than FY17,” said Upadhyaya.

He feels real estate sector will take a long time to recover from the effects of demonetisation, while he expects auto and FMCG sectors to drive the markets once the economy normalises.

From the upcoming Union Budget, Upadhyaya expects government to clearly focus on consumption revival, which has been hurt due to demonetisation. He further expects government to create more jobs across sectors.

“There could be incentives such as tweaking of tax slabs/tax rates to revive urban consumption and some kind of increased focus on agriculture, irrigation etc. for rural economy,” Upadhyaya said, adding that the government will also focus lot more on affordable housing.

Large scale announcements could be made on construction projects which will help create jobs for unskilled labour, he said.

The fund house is receiving ‘strong’ inflows in its schemes and is broadly sitting on 3-7 percent cash across all its funds.