The kind of recovery we’ve seen seems more like a rebound rally, primarily because we were in an oversold zone. FIIs’ positioning hasn’t changed significantly, staying below 25% in index futures. We’ve seen a good rebound, but are we truly out of the woods? Major concerns like the dollar index, macroeconomic factors, and geopolitical risks still loom large. What’s your take?
Mayuresh Joshi: All these concerns are absolutely valid, and they are impacting emerging markets, including India. It’s not just India that’s bearing the brunt of FII outflows—other emerging markets are experiencing similar trends. For instance, the movement in US 10-year yields and the narrowing of equity risk premiums for emerging markets have led to consistent outflows across the board.
To add to this, the recent earnings season hasn’t been very strong. Urban consumption has slowed down and is expected to remain subdued. Many sectors have delivered weak numbers, although there were some bright spots. A few banks, NBFCs, agrochemical companies, and infrastructure/manufacturing firms posted relatively better results and provided positive commentary.
When you combine these factors with geopolitical risks, market volatility is likely to persist. Today’s market rally, after days of FII outflows and declining indices, was a pleasant surprise. However, I believe the markets might remain range-bound, undergoing time and price corrections, with potential consolidation ahead.
This week, despite being a truncated one, we’ve seen several regulatory developments. SEBI introduced new rules for PSUs regarding stock splits, dividends, and bonus issues. Additionally, there have been revisions in the F&O basket, including changes in stocks and contract sizes. Do you foresee any near-term impact from these events? Could they have a significant effect as we approach next week’s trade?
Mayuresh Joshi: Looking at the PSU space, these developments are positive for investors. In the PSU banking segment, for example, banks have delivered excellent results in terms of advances growth, supported by a strong and sticky deposit base. Deposits are expected to grow at a decent pace, and asset quality pressures are at an all-time low. For some banks, NIMs have actually improved quarter-on-quarter, and provisioning coverage is robust. This means recoveries directly boost their bottom line.
Valuations for PSU banks are also quite attractive. Banks like Bank of Baroda and Bank of Maharashtra remain part of our global portfolios. On the defence and PSU stock front, while there’s been some correction, improving numbers should eventually turn the tide. If the correction continues, the risk-reward ratio becomes even more attractive. For investors, starting a SIP in the CPSC ETF could be a good option at this juncture.
One of the biggest drags on the Indian markets has been the slowdown in the earnings cycle. While Q2 brought some surprises, experts warn there could be more pain ahead. Commodities sectors like cement, oil and gas, and chemicals—which are closely tied to the economy—have struggled. Could aggressive government spending revive momentum and sentiment in these sectors?
Mayuresh Joshi: Absolutely, and that’s the base-case scenario. Government capex is expected to pick up significantly in the second half of the fiscal year. The substantial budget allocation from the previous budget will start to show its effects, and private capex is also likely to make a comeback.In terms of earnings, sectors like BFSI and agrochemicals, which benefited from a strong monsoon and healthy reservoir levels, are poised for good performance in the Rabi season. Domestic agrochemical companies should continue to do well. For infrastructure and manufacturing, the renewed focus on government capex will boost sub-sectors like cement, which can start performing better.
Overall, selective banks, agrochemical companies, infrastructure firms, and specific manufacturing and cement stocks should deliver strong earnings going forward.