In an interview with ETMarkets, Thomas said: “IT could be another sector where earnings growth could outpace the consensus estimates. Gen AI related technology spends and a revival in discretionary spends could be major drivers for a meaningful change in growth trajectory” Edited excerpts:
Thanks for taking the time out. After a turbulent October we are witnessing a volatile November. What is your take on markets?
The earnings print in the recently reported quarter were not exciting. Input cost moderation led to strong earnings growth in FY24. Considering the high base, a meaningful improvement in volume is required to sustain the earnings momentum.
Early indications from the festive season have indicated moderate demand trends across sectors. Considering the above average valuations, returns could be moderate in the medium term.
How do you see the outcome of the US Presidential Elections and its potential impact on Indian markets as well as sectors in particular?
We don’t see a major negative impact from policy changes. The policies of the current administration could lead to diversion of trade away from China.
India could be a beneficiary in sectors like pharma, especially generic drug and active pharmaceutical ingredient (API) suppliers, where China has a significant presence.
Higher economic growth due to measures like tax cut could trigger corporates to re-start their discretionary IT spending. Trump’s foreign policies could help in containing geopolitical conflicts and lead to softer crude oil prices.
What are the queries that you are getting from your clients?
Most of the client queries revolve around current valuations and it’s bearing on potential returns. Few investors tend to overly rely on recent past performance which mayn’t be indicative of long-term return profile.Some of the recent outsized returns could be the result of high flows into certain segments like small and midcaps, beyond their capacity to absorb. Investors need to be cognizant of their risk profile and rebalance their portfolios depending on individual risk profile.
Earnings season has not been that robust compared to the kind of valuations we are trading at. Do you see some more stock specific consolidation before a constructive trend can emerge?
Few stocks are trading near full valuations. Some part of this is triggered by persistent high flows in certain categories like small and mid-cap. Elevated valuations has led to sharp reactions, even in case of a slight miss in earnings.
Considering the current valuations, we have clearly borrowed some part of future returns. We could see a period of moderate returns before the emergence of a constructive trend.
FII selloff was more than Rs 1 lakh cr in October. A part of it moved to other EMs, data showed. How is India placed among global peers? Do you see this as a trend going forward?
India remains as a long-term structural story supported by a stable macro, high share of domestic consumption and household’s under-allocation to equities. There could be periods of volatility in foreign flows depending on global interest rate scenario and hopes of China recovery.
High global interest rate is bound to have an impact on EM flows. We don’t perceive this to be a long-term trend. From an India perspective, under-allocation of Indian households to equity and increasing financialization could largely nullify the impact of volatile foreign flows.
Which sectors are looking attractively priced at current levels?
Most sectors are trading near peak valuations barring Financials. Some of the private banks are likely to see a re-rating as the liquidity scenario and credit environment normalises.
In a falling interest rate environment, an easing of system liquidity would be beneficial for private sector banks. As the NPA (Non-Performing Assets) cycle normalises, some of the better private sector banks which are trading near decadal low valuations are likely to stand out among peers. Banks would also be a beneficiary of a potential revival in private capex.
IT could be another sector where earnings growth could outpace the consensus estimates. Gen AI related technology spends and a revival in discretionary spends could be major drivers for a meaningful change in growth trajectory.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)