Currently, "we are in a strong business as well as market cycle and hence premium valuations are largely justified," Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS said in an interview to Moneycontrol.
Overall, fundamentals continue to remain strong which limits the market downside, he believes.
Kulkarni, who has more than 15 years of experience in the equity research, believes that high-quality PSU banks could continue to perform well considering their improved offering and relatively cheaper valuations.
Most experts (even global) don't expect major correction in the equity markets despite expensive valuations. What is your take?
Market valuations are only slightly expensive compared to long-term average valuations. However, the long-term average is a composition of various market and business cycles. Currently, we are in a strong business as well as market cycle and hence premium valuations are largely justified.
The risk to markets emanates largely from macro risks, which are difficult to diversify. These risks are geopolitical and economic. Although geopolitical risks have escalated in the past decade, India finds itself in a relatively advantageous position. Also, economic risks are relatively subdued as most high-frequency indicators continue to show resilience. Overall, fundamentals continue to remain strong which limits the market downside.
Also read: Race for Yes Bank: Japan’s MUFG, SMBC weigh majority stake buyout in lender
Do you expect significant FII inflow into India post clarity over general elections and full year budget in June-July?
FII inflows are expected in the bond market. However, inflows in equities can vary significantly depending on global market conditions. Global flows have become increasingly passive and thus are more dependent on global market cycles.
If global market cycles remain favourable then India will benefit disproportionately as our weight in global indices continues to rise. However, if global markets are not favourable because of geopolitical conditions or higher inflationary pressures then even India may not see the inflows expected on account of favourable election results.
Also read: Retail inflation eases to a 10-month low of 4.85% in March
Are the high quality PSU banks still looking attractive?
PSUs continue to remain attractive on account of cheaper valuations and their ability to deposit growth. PSU banks have also upped their product offering and are in a better competitive zone than in the past. Thus, gaining market share from PSUs is not as easy as before.
We believe that high-quality PSU banks could continue to perform well considering their improved offering and relatively cheaper valuations.
Is the time to focus on the commercial vehicle space over others in the auto segment?
Commercial vehicle (CV) space is not the most exciting in the auto segment as it is highly cyclical. However, the 2-wheeler and passenger vehicle (PV) segments continue to be interesting due to product development, premiumization trends, and relatively better long-term prospects.
Also read: TCS Q4 results, record order book gives revenue visibility for near term: Experts
Do you think the cycle is still strong in the real estate space?
The real estate cycle has been relatively strong, especially in the luxury segment. We expect this trend to continue into FY25 as the real estate cycle is relatively longer.
Which are the sectors that will post strong earnings growth in Q4FY24?
The BFSI sector will be critical as credit growth continues to remain robust. While earnings expectations are quite strong, a crucial factor will be the pressure on the margins for the sector. Auto OEMs (original equipment manufacturers) will see a strong quarter as auto sector numbers have been healthy. Moreover, margins for the quarter should continue to remain strong.
The IT sector is likely to report a mixed set of numbers. Results of consumer staples may also be similar with performance remaining a mixed bag. Consumer discretionary should report a better set of numbers while the cement sector should see decent volume but muted price trends. Overall, earnings season is expected to be reasonably aided by healthy macroeconomic trends.
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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