Industrial orders are likely to pour in after the elections and, therefore, Axis Securities maintains a good exposure to the industrial space across the strategies it handles, shares Neeraj Gaurh, a fund manager, during an interview to Moneycontrol.
In the consumer discretionary space, Axis likes auto and auto ancillary names oriented to passenger vehicles and two-wheeler segments, says Neeraj who has spent nearly two decades in the financial services industry.
As the market approaches the general elections from April 19, Gaurh suggests caution. Excerpts:
Do you rule out further sharp correction in midcaps and smallcaps from here on? Should one buy significantly in the recent correction?
CY 2023 was a great year for both midcap and smallcap indices, delivering 47 percent and 56 percent returns. By mid-February 2024, about 84 percent of the NSE 500 stocks were trading above their 200 DMA, depicting the broad-based strength of the market. Given the recent correction, that number has come down to about 64 percent, while the long-term average is around 55 percent.
We see signs of leverage unwinding, driven by regulatory actions. For FY25, we need to moderate our expectations of market returns in line with the earnings growth.
New investors should look to invest in diversified portfolios and not chase highly concentrated small-cap folios based on their last one-year return. The large caps offer better value at current levels, but the broader markets can see tepid returns this year.
Which are the sectors to tap in the next financial year?
Cyclicals are driving the earnings growth, and we continue to be positive on the capex cycle for the medium term. We like select capital goods, auto ancillaries, pharma, cement, and manufacturing-oriented names.
Also read: Ramesh Damani hopes for policy continuity as polls near, lists sectors to bet on if BJP returns
In June 2023, we launched our Kaizen fund, which focuses on manufacturing, and this PMS scheme would not invest in the services sector. It has significantly outperformed the index since its launch.
What is your reading on the recent FOMC meeting? Do you see the possibility of Fed funds rate cut by June after reading the Fed chair commentary?
The FOMC statement was unchanged, while growth was revised from 1.4 percent to 2.1 percent this year, and inflation by 20 bps to 2.6 percent. Despite these projections, the median participant still expects three cuts this year.
For 2025, the median participant expects three cuts in place of four cuts. The 2026 plot saw the median dot increasing from 2.9 percent to 3.1 percent.
Uncertainty around core PCE inflation is similar to the last September, but risks are more weighted to the upside. If, by the June FOMC meeting, core inflation comes to Fed comfort levels, we can likely see the normalisation in Fed policy. While keeping an eye on monetary policy, investors need to be cognizant that exceptional fiscal stimulus has bolstered the economic growth in the US.
Also read: BSE to launch beta version of T+0 settlement on March 28, releases operational parameters
Are you betting big on the industrial and consumer discretionary space?
We have seen a consistent rise in public capex except for the Covid years when state capex slowed down. Also, under DFI (development financial institution), fresh funding of Rs 5 lakh crore is being targeted in the next three years, which could be significant if executed well. Corporate balance sheets are in good shape, and the share of corporate profits to GDP is expected to reach new highs in the coming years.
We should see a pick-up in private capex in the next two years. We expect renewal in industrial orders once the elections are over. Hence, we maintain good exposure to industrial space across the strategies we manage.
In the consumer discretionary space, we like auto and auto ancillary names oriented to passenger vehicle and 2-wheeler segments. We are also positive on hotel and tourism-related stocks.
Which are the triggers that the market is eagerly waiting for?
2024 is an election year in which about half of the global population will be voting across 40 countries, including Russia, India, Indonesia, Iran, the EU, the UK and the US. For India, post the state elections in November 2023, markets factored in a high probability of continuation of the current administration and economic policies.
However, we need to stay cautious until the event is behind us. Also, it is crucial to balance the excitement around market highs with the potential risks related to geopolitical concerns.
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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