In the upcoming year 2024 the investor discourse will shift from interest rates to national elections, and inflation will start to cool off. As private sector capex comes through post elections, it will present investment opportunities in power, real estate, lending, and other sectors, says Edelweiss Mutual Fund’s CIO-Equity, Trideep Bhattacharya. In a conversation with Moneycontrol, he talks about the year gone by and what to expect in 2024. Here are the edited excerpts:
How do you see the markets playing out in 2024?
2024 will be the year of multiple transitions. First, there will be a shift from economics to politics and geopolitics. The debate will move from whether interest rates have peaked to the nations going through elections, including the US and India. Markets would be noisy with political rhetoric across the globe. It will not only have near-term implications but also have the potential to shape the geopolitical contours for the next four or five years. Second, 2024 will also be the year when inflation and interest rates start to fall. It will put some more money in consumers’ pockets, with implications for a few sectors gaining over the others. Third, global growth will bottom out after a slow start in 2024. As we get into 2025, global growth will be on the mend and we will see improving rates.
Finally, assuming macro stability, in India if the current government continues for the third term, it will most likely be growth-focused, both in intent and in the reforms benefiting growth.
Also read: Moneycontrol Pro Panorama | Will markets shine in an election year?
How do you view the year 2023?
As the year 2023 ends, we are dealing with stronger growth than expected. Earlier, it was expected that there would be recessions due to the fastest interest rate increase in the last 40 years. But that did not happen, partly because while monetary conditions were tightened, fiscal policies continued to be loosened. Inflation also turned out to be stickier or higher for longer, and likewise for interest rates.
What are the segments on which you are betting big?
We are looking at areas that would see earnings upgrades and outperformance in a positive macro environment, or that would see fewer downgrades in negative macro conditions. “Heads, I win more; tails, I lose less.”
First: Capex. I think there is a good chance of private sector capex coming through after the election.
Second: NBFCs. With rate cuts on the horizon, there could be a better scope of earnings upgrades. Within financials, lending financials and non-banking financial companies, particularly those with strong liability franchises, are good bets.
Third: Real Estate. Apart from being a beneficiary of falling interest rates, it is in the middle of a five- to seven-year upcycle. In the first half we have seen the builders do well; in the second half, ancillary sectors like building materials will do well.
Fourth: Power. India will go through a 2- or 3-year timeframe of power deficit where power-exposed stocks will do well. Whether it is generation or distribution, we will have to selectively pick stocks. But this is definitely an area of earnings resilience.
Fifth: Information Technology. The IT sector is a dark horse as a strategic play on bottoming out of global growth rates. As the US GDP starts doing better, IT earnings could be resilient over time.
Also read: MC Pro New Year Portfolio: These 17 stocks show promise for a rewarding 2024
What is your stock-picking checklist?
Our investment philosophy revolves around four pillars: the “FAIR” way of investing; F stands for forensics; A stands for acceptable price; I stands for agnostic investment style; and R stands for robustness. We are interested in financially clean companies, whose business models are robust, i.e., whose return ratios are higher than the cost of capital through the last business cycle. And, they should be available at an acceptable price, which is a margin of safety of 20 percent or more.
Our emphasis is on forensics, which is beyond the P&L balance sheet and the cash flow. There is merit in alpha, or rather, a lack of negative alpha, in doing so over the business cycle. Given that some of our flagship strategies are mid- and small-cap, we think this is a prudent way of safeguarding investor money.
How do you view IPOs as investments?
We are a little careful in investing in IPOs because of the asymmetry of historical and track-record information. While the regulator and the DRHP do a very good job of publishing the last three-year financials, there is a need for more research. We have checks and balances and look for unique business models complementary to our existing listed portfolios. We are interested in companies that are profitable, generate cash flow, and have all four elements from our checklist. We particularly place more emphasis on cash flow-oriented companies. We have avoided some of the new-age companies that talk only about growth and not about cash flows. But once they talk about cash flows, we look at them from an investing standpoint.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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