‘Private banks to lead next leg of market rally’
As the markets trade at all-time high levels, chief investment officer of Axis Securities, tells Nikita Vashisht in an interview that ‘quality’ as an investment theme is set to outperform ‘value’ going ahead. The government’s relief measures for the telecom sector, he says, are necessary for the industry to address some of the challenges, but pricing concerns will persist. Edited excerpts:
Do you see the market rally continuing?
The market has seen strong earnings momentum and almost all sectors are reporting strong earnings trends. The June quarter of financial year 2021-22 (Q1FY22) saw further earnings upgrades, notwithstanding the impact of the severe second wave of Covid19. It also seems likely that earnings momentum will sustain in Q2. Thus, while the market could seem a little expensive optically, a strong earnings trend will mean the rally is more likely to sustain than come to a grinding halt.
Apart from valuations, what has made foreign portfolio investors (FPIS) cautious on India?
FPIS are impacted by a multitude
of factors that include the rising cases of the Delta variant, global inflation, and the US Federal Reserve’s commentary. As sentiments change on these factors, the view of FPIS also change. At present, the concern of the delta variant has risen and inflation challenges continue.
What has your investment strategy been over the past few months?
We have focused on ‘quality’ as a theme for sustenance of the healthy returns generated over the last one year. Over the last 12 months, the two dominant market strategies have been ‘value’ and ‘quality’. While ‘value’ has outperformed the other themes of ‘growth’ and ‘momentum’ by a significant margin, the outperformance versus ‘quality’ has reduced significantly.
What is your view on the telecom sector after the government’s relief measures?
The reforms are long term and structural in nature. They will help the sector address cash-flow issues in the short term and also provide better visibility to build long-term business plans. The measures announced are positive for Vodafone Idea (Vi), as the fouryear moratorium provides enough time to manage its balance sheet and improve business fundamentals. The reforms are also positive for the tower companies as there will be better visibility of tenancy. Overall, this is a positive step for the industry in addressing some of the challenges, but pricing concerns will persist for the sector.
Which sectors are you overweight and underweight on?
Our key overweight sectors are information technology (IT), metals, private banks, and telecom. We have been underweight on autos and pharmaceuticals. The automotive sector has suffered because of the global chip shortage and rising commodity prices, whereas the pharma sector has been a mixed bag with domesticfocused plays doing better than export plays in recent months. However, pharma is more of a bottom-up sector with significant opportunities in niche categories.
Which sectors and stocks can lead the next leg of the rally?
As the economy picks up, credit offtake will also rise and growth will return. As the growth rate rises, the challenges of non-performing assets (NPAS) start subsiding. Private banks are well placed to deliver good performance over the next six months. There is a wide range of choice in consumer stocks. Consumer discretionary is also well placed to deliver good returns, and the opening up of the economy is a big theme in this space. There is significant pent-up demand in hospitality, office wear and other discretionary categories. Our top picks in consumer stocks are Aditya Birla Fashion, Varun Beverages, Asian Paints, and Hindustan Unilever (HUL).
“OUR KEY OVERWEIGHT SECTORS ARE IT, METALS, PRIVATE BANKS, AND TELECOM. WE HAVE BEEN UNDERWEIGHT ON AUTOS AND PHARMACEUTICALS... THE PHARMA SECTOR HAS BEEN A MIXED BAG WITH DOMESTICFOCUSED PLAYS DOING BETTER THAN EXPORT PLAYS”