New-age stocks’ valuations now sensible, says Nippon MF’s Sailesh Raj Bhan

Nippon India Mutual Fund CIO - equity investments, citing high valuations as a concern for fast-moving consumer goods (FMCG) stocks, said he is currently underweight on the sector.

Chances of a ‘right to win’ are high for some of the new-age tech companies and their valuations are now sensible, believes Sailesh Raj Bhan, chief investment officer, equity investments, at Nippon India Mutual Fund.

“The stocks have fallen 50-60 percent after listing. Their valuations are still certainly not cheap but they are ‘okay’,” he said in a media meet. New-age stocks have been under tremendous pressure over the past one year on the back of investors’ growing expectations for profitability.

On the flipside, he cited high valuations as a concern for fast-moving consumer goods (FMCG) stocks and said he is currently underweight on the sector.

When probed why he was positive on loss-making firms but bearish on staple companies that have been consistent compounders, he said, “Growth demonstrated by FMCG companies over the past few years has not kept pace with the high valuations.”

“Meanwhile, most new-age tech stocks are operating in a large market with limited competitors so their chances of outpacing FMCG companies’ growth is very high,” he added.

According to data compiled by Prime Database, Nippon India Mutual Fund has exposure to Nykaa, Zomato and Paytm, though it’s less than 1 percent each.

Another sector Bhan is bullish on is pharma. He believes earnings will rebound in the sector in the next 12 months. Currently, pharma stocks are lying low after two years of a glorious run during the COVID-19 lockdowns. The Nifty Pharma index has dropped 9 percent in the last one year.

“India is a chronic time bomb. We have about 30 crore elderly. The ones above the age of 50 consume 2-3 times more medicines than the younger lot,” he said, adding that despite being a developing nation, India has all the diseases of developed nations like obesity, diabetes, etc.

The next 10-20 years will be “structurally very big” for pharma companies, he believes.

Bhan also likes cyclical sectors like financials for the strong balance sheets, and engineering and industrials for their growing order books.

“Absolute profits of engineering and industrial companies are now lower than 2010 levels, but the large order inflows will fix that soon. The segment makes for only 3 percent of the index,” he said.

Coming to the overall market outlook, Bhan sees the Nifty’s earning per share growing by 18 percent in FY24 and by 15 percent in FY25. “Part of this will be on the back of supernormal profits by oil marketing companies. When that is adjusted, Nifty's earnings will grow 12-13 percent," he said.