Investor Questions Answered - Diwali Edition

Q: What investment themes would you like to suggest to investors this Diwali?

With the festive season in view, betting on consumption-led sectors, Autos, Consumer Discretionary, and FMCG would make sense. And a few stocks from this segment, especially jewellery and a few FMCG names, have already turned outperformers. But even with all the festivities, we must be careful about the global volatility, the rising inflation and the depreciating rupee. The dollar dominance could make IT and Pharma attractive, and the big numbers expected from the Banking earnings will also make Banks attractive.


Q: Do you expect Nifty50 at 20,000 by next Diwali, considering all the emerging global risk factors, which is 13-15 per cent odd from here on?

Towards the next year, we could see central banks turn more accommodating and start cooling the interest rates. As a result, the inflation numbers are also expected to begin tapering off. In an accommodative global scenario, India would emerge as a desirable destination for investments as the economy remains robust despite global volatility. If the economic situations turn favourable, which is a possibility, the target of 20000 is not unachievable. But, Oof course, the unpredictable geo-political situation remains a concern and can play further spoilsport.


Q: What are your thoughts on corporate earnings announced so far, and with this, do you expect strong earnings growth in the second half of FY23?

Corporate earnings are coming in strong from the consumption and banking sectors. Due to the commodity price correction, the metals and Oil & Gas sectors will be the laggards. The numbers for the Auto sector and Banks are expected to continue to be exceptional. Some stocks have missed estimates, and the lowering of expectations by some IT names has been discouraging. We are seeing sell-offs post earnings in some counters as the concern around valuation remains. We expect the earnings to bottom out this quarter and recover from the next quarter. The margins are also expected to rise from the next quarter.


Q: Banks have seen a significant run-up after September quarter earnings. Have you turned super bullish on the space?

This quarter's banking numbers are speaking for themselves, and the projections and expectations remain strong. The run-up is a direct result of the vital expectations from the earnings. We believe this is the time to turn bullish on the Banking and Financial services space and start picking winners. Other financial services like NBFCs, Insurance etc., are also expected to post great numbers, and we have to start focussing on these sectors.


Q: Have you spotted any themes among PSUs that have been seeing buying interest intermittently?

PSU Banks have been shining brighter than any other sector over the past year, and the recent performance has also been exceptional. Indian Bank, SBIN, and Canara Bank stand out in this sector. Apart from Banks, a few other themes from the PSU packet stand out. In the defence sector, PSU names like Bharat Electronic Limited stand out. Similarly, the Container Corporation of India is an excellent pick in the logistics sector.


Q: Is HDFC Bank providing excellent entry opportunities after underperformance for the last three years?

HDFC Bank posted great numbers this quarter. The profit grew 23%, and the gross NPAs also reduced from the previous quarter. As a result, the bank remains attractive and is a strong pick in a rising interest rate environment. The merger concerns and NIM pressures have kept the stock a little muted in the last year, but with these impressive numbers and great prospects, the stock could finally pick up the pace.


Q: Do you think Indian chemical companies are well placed to gain from China+1 and Europe+1 factors?

Indian Chemical companies, especially speciality chemicals, will also post great numbers this quarter. The turmoil in Europe has caused rationing of energy resources out of the Chemicals manufacturing sector, closure of many facilities in the geography and a consequent surge in chemical prices. Ammonia, caprolactam, methanol, melamine, and caustic ash are some energy-intensive chemicals that will see a decline in European production and subsequently, the demand from Indian manufacturers could rise. On the flip side, the demand slowdown in the western world could also impact the market, which remains to be seen.

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