In an interview with ETMarkets, Garg said: “IT & Pharma/Healthcare are the other sectors that can be considered from a mid-long-term perspective. The PSU’s and the commodities-linked sectors are the ones where one needs to be cautious or can be avoided for now” Edited excerpts:
Markets are climbing to a new peak every day with Sensex at 67000 while Nifty50 is inching towards 20K – is the market running ahead of fundamentals?
While the Nifty50 has made new highs, performance relative to global markets (the US in particular) has been lackluster. In fact, Nifty has under-performed SPX year-to-date.
Easing oil prices and a weaker dollar have been India-specific macro positives. However, India’s market rally has thus far been re-rating led, with earnings estimates typically lagging.
Also, the valuation, while currently higher than the historical average, is not excessively so.
Many call this a global rally as most of the global markets have done much better so far in 2023 and India is just catching up now. What is fueling optimism?
The optimism in global markets is being driven by easing inflation, suggesting an end to monetary tightening as well as expectations of a benign economic outcome.
This is despite a significant increase in interest rates over the last 12 months. Recently, the optimism has also been driven by AI catapulting growth expectations.
Which sectors are likely to lead the next leg of the rally in markets?
Globally, the equities have been led overwhelmingly by the tech sector while the IT sector in India has been lagging.
We are now seeing a rotation into tech and believe that to be one of the best-positioned sectors in India.
What do you make of the numbers delivered by big thicket IT companies in Q1?
The consensus indicates muted earnings and moderate guidance in the near term due to the macroeconomic distortions globally, the slowdown in discretionary spending, and the cut down in budgets across key verticals.
The results announced by tier-I IT companies have been a mixed bag, with continued pressure on margins.
However, a growing pipeline of large deals suggests continued momentum and resilience, which is critical for 2H growth and laying the foundation for FY2025 growth.
The upcoming quarters will be critical to watch as they may provide a directional and clear view of underlying recovery and growth in the sector.
Any sector(s) that you think are overvalued and investors can look at going underweight on/reduce exposure?
The ongoing rally has been broad-based, thereby making the top-down assessment even more difficult. We continue to favor the Infra, Capital Goods, BFSI, and Auto sectors.
IT & Pharma/Healthcare are the other sectors that can be considered from a mid-long-term perspective. The PSU’s and the commodities-linked sectors are the ones where one needs to be cautious or can be avoided for now.
What is your take on the recent IPOs which have hit D-St in June and July? Most of them are not big-ticket names but still attracted a lot of interest. How should one approach the companies in 2023?
During the first half of this year, mainstream IPOs experienced moderate performance, but there has been a remarkable frenzy in the SME space when it comes to IPOs.
A diverse range of entities from various sectors, including industrial equipment, defense, consumer durables, jewelry, and banking, have entered the public markets recently.
Notably, these IPOs have been of smaller issue sizes, generally less than 1000 crores. The enthusiastic response from investors can be attributed to the overall bullish trend in equities, the smaller size of the issuances, and the heightened interest in these sectors.
While some of these IPOs have continued to perform exceptionally well even after substantial listing gains, others have been trading around their debut opening levels.
It seems that a sense of exuberance may already be factored into the current stock prices, and going forward, we expect these stock prices to align more closely with the underlying fundamentals.
As the market dynamics stabilize, the true value and potential of these companies will likely drive their stock performance.
How do you pick stocks for investments? What are the filters you deploy?
For our long-term core holdings, we focus on quality businesses (sustainable competitive advantages) that can deliver (profitability and shareholder returns) on a sustainable basis. We also focus on valuation support and overlay that with tactical market signals.
What is your take on HDFC Bank-HDFC merger? On paper it looks rosy but do you think there will be internal challenges? Do you see a similar consolidation in the industry?
As with any major business combination, there are likely to be some teething issues. However, given how closely the two companies have operated in the past, we see such issues as less of a concern, especially due to the synergies of merging two complementary businesses.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)