“Sectors which seem to disappoint the most would be automobiles, specifically four-wheelers, cement & infra due to an extended monsoon season and FMCG due to subdued demand because of food inflation,” he says. Edited excerpts from a chat:Do you think it is the right time to start selectively picking rail and defence stocks which have seen a lot of correction in recent weeks?
Investing should be considered only when there are clear signs of reversal, which are currently absent in most defence stocks. Only a few exceptions show some stability, so it’s better to wait for stronger indications of a recovery.
I think there is a substantial consolidation ahead for the Rail & Defence theme which had a fantastic runup in the last 18-24 months. Current valuations are on the higher side. Once this consolidation is over, then it can be looked at again. We have to remember that both the themes hold a longer gestation period in terms of order to delivery, and what we have seen is a order book based runup leading to 3-5X valuation higher than their global peers specifically in defence. For railways, consolidation might be wrapped up earlier than their defence peers.
Investors who were betting on PSUs and capex plays related to rail and defence are now hunting for new emerging themes. Where do you think the puck is going to be?
I see traction in 3 sectors going forward, Healthcare, consumer discretionary with premiumisation and financial sector with non-lending space. Among prevailing themes, power will remain bullish and manufacturing specifically in electronics & components.
The market has been largely worried over the impact of tensions in West Asia, shifting of FII money to China and high valuations. How strong do you think the China resurgence story is going to be? Is it just a tactical trade or a long-term play?
Fund management community seems to be divided on China play, with some referring to stimulus by China govt as real and went for bottom fishing, whereas the other half takes it as tactical ploy. With elections ahead in US, it is believed that the trade war will China will be more aggressive as we see in European Union currently and same factors will continue to be in force whosoever comes in power.
Smallcaps have been going through a tough time. Is most of the pain over or do you think more froth is left in the market?
On a broader view, smallcaps had a tough time since the beginning of 2024, but certain sectors had played out well be it specialty chemicals, financial services, specifically the asset management bouquet. Going forward, we see stock specific actions and to a certain extent sector specific metals, consumer discretionary, power sector related manufacturers, asset management and pharma & healthcare.
Take us through your expectations from the Q2 earnings season. Which sectors are likely to disappoint the most?
It seems that the Q2 will broadly remain a muted earnings season with Nifty50 in single digits. Sectors which seem to disappoint the most would be automobiles, specifically four-wheelers, cement & infra due to an extended monsoon season and FMCG due to subdued demand because of food inflation.
Given the valuations that we are trading at and the global set-up, how bullish are you on gold and silver? Where do you see the two precious metals headed in the rest of FY25 and is it time to raise allocation?
Gold had primarily been a play by central banks as the US debt soared to an all time high. Second factor was a continued geo-political risk in the Middle East and Russia -Ukraine conflict. Till the time above factors are active we can see a demand in gold & precious metals including silver continued even in FY25.
For someone who is in a moderate risk profile, what would be the best asset allocation strategy you would recommend?
Considering the bullish macro structure of India with GDP projection by 7% growth estimates by various agencies like World Bank and IMF, equities should be an ideal choice. Allocation can vary between sectors and market caps. For a moderate risk taker, stock selection can be done in emerging themes out of Nifty Midcap and Nifty Next 50 Indexes and it seems an ideal choice to invest in.