Moneycontrol Mutual Fund Summit | Financials emerge as top bet for 2023

India’s stock markets are not cheap at the moment, but there are pockets of opportunity with good visibility on earnings growth, veteran fund managers said at Moneycontrol’s Mutual Fund Summit. Financials are one such sector.

Currently, the Nifty 50 trades at 20.3x the price-to-earnings ratio, at an 18.8x premium to its historical average of current constituents. While the Nifty has gained over 6 percent this year, the Nifty Bank index has rallied 22 percent, and the Nifty PSU Bank index has advanced 77 percent in this period.

On the back of an increase in capital expenditure and the cleaning up of bad loans on their balance sheets, bank stocks remain the market’s darlings.

“The rally in banks is completely in sync with earnings growth and better asset quality,” said Neelesh Surana of Mirae Asset MF.

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Contrary to popular belief, mutual funds are not overweight on financials.

“Midcap and small-cap funds don’t hold too many financial stocks. And, whatever is present in large-cap funds cannot be more than 40 percent, which is the weightage of financials in the Nifty 50,” said R Srinivasan of SBI Mutual Fund. He too sees MF allocation towards financials increasing in 2023.

Healthcare and pharma emerged as the next big bets among the panelists. Along with Surana and Srinivasan, S Naren of ICICI Prudential MF said he is betting on this defensive sector. In a high-volatility scenario, pharma usually emerges as the go-to sector for traders and investors.

“Pharma stocks have not done well this year, so there could be some bounce back,” said Naren.

The Nifty Pharma index is down over 9 percent so far this year as most stocks had run up significantly in 2020 and 2021 on the back of Covid-19 drugs. According to BofA Securities, pharma generally outperforms the benchmark Nifty in six-month and 12-month horizons following periods of uncertainty.

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On industrials, Surana and Srinivasan were on different ends of the spectrum. While Surana said industrial stocks were expensive, Srinivasan maintained they were good for the long term.

“I don’t think we have the liberty to get out of industrial stocks and get in again. So, we will sit through the underperformance, if there’s any,” said Srinivasan.

BofA Securities, too, is overweight in the sector. In its 2023 market outlook, the foreign brokerage said, “With stable fiscal position, capex spending could continue in CY23, private capex too should accelerate next year. Current underweight positioning of FII, valuation at 22x versus peak of 26x gives us comfort.”

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