Edelweiss Mutual Fund is upbeat on private banks as he believes private banks will keep gaining share from PSUs
With commodity prices stabilizing, corporate earnings are likely to pick-up. In FY15 and FY16, lower commodity prices that had pulled down earnings.
Earnings growth is expected to pick-up and be in the range of 15-18 percent over next two years, believes Harshad Patwardhan, Chief Investment Officer, Edelweiss Mutual Fund.
“Commodity prices having stabilized is a good news for aggregate earnings growth. We believe that growth will be in the region of 15-18 percent over the next 2 years,” Patwardhan told Moneycontrol in an interview.
He further said that investors need to be cautious with the recent rally in the market. For valuations to sustain earnings per share (EPS) growth is crucial and the rally may not sustain for long.
Ardent fan of ace investor Warren Buffet, Patwardhan, is upbeat on cement, construction-related businesses, private banks and select non-banking financial companies.
“Industrial capex is not expected to start for some more time. But infrastructure creation is a big theme,” Patwardhan said.
“We are not necessarily playing this theme through infrastructure asset owners, but through companies that help build infrastructure. Housing for All schemes is something that lots of companies are levered to,” he added.
Edelweiss Mutual Fund is upbeat on private banks as it believes private banks will keep gaining share from public banks. The non-banking finance companies (NBFCs), which have done well, will continue to report strong performance.
On the other hand, Patwardhan acknowledged the performance of PSU banks have started to improve and believes that we are ‘closer to the resolution of the NPA issue.’
The fund house is running an underweight position in pharmaceutical and FMCG sectors.
“My world view is that things are looking to revive in the Indian economy. These 2 sectors (FMCG and pharmaceutical) which are generally considered defensives are likely to underperform,” Patwardhan said.
Another important theme currently is consumption.
“We believe that in the next 2-3 years and even longer, a big theme will be rural consumption and there will be demand revival from agriculture as well as non-agriculture activities.
Speaking about the performance of IT companies, Patwardhan explained that due to the size of large IT companies, mirroring past year growth rates will be difficult to achieve.
“Many of leaders in the IT services companies have been talking about automation. This challenges the legacy IT services business which was linked to the size of manpower,” Patwardhan said.
“Leading IT services are trying to adapt to these changes but they do have a lot of legacy business which could be a drag,” he said adding that the ongoing H-1B visa troubles and appreciating rupee have added to the woes for the sector.
Patwardhan is a follower of the bottom-up approach to investing in which the investor focusses on the individual stock rather than the industry or the economy as a whole.
According to Patwardhan, the most important global macro factor to watch out for in the Indian context is oil prices. He believes that oil prices have an extra ordinary bearing on the macro, from the perspective of fiscal deficit, inflation and current account deficit.Patwardhan likes swimming, listening to music and reading non-fiction books.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.