Consumer Durables Stocks: ETMarkets Smart Talk: Consumer durables stocks are now trading at inexpensive valuations: Siddarth Bhamre
In an interview with ETMarkets, Bhamre said: “We are bullish on cement, IT, FMCG at large, within this space semi-large cap names can be assessed for their valuation and exposure can be taken accordingly.” Edited excerpts:
How are FIIs placed in 2024 after the recent selloff seen last year?
There was a reason for India’s outperformance. The US was/is struggling to control its inflation amidst a slowdown, Europe is under the shadow of the Russia-Ukraine war and China was copping with COVID lockdowns.
India was the only bright spot in an otherwise gloomy global economic outlook. This situation directed funds toward India. Earnings were slow to catch and our market from a valuation perspective became expensive.
In between global data points showed some initial signs of normalization. Indian markets thus underperformed as other markets played a catchup role. We do not believe our markets will continue to underperform for long.
Our growth is here to stay. Earnings are likely to catch up with time and small corrections will keep bringing markets out of the expensive valuation zone. Investors with long-term horizons should continue to remain invested.
What are the near-term risks you foresee for India?
US inflation still remains the numero uno concern on the international front followed by a spike in oil prices.
Domestically rural economy not picking up due to unfavorable monsoon may be the other factor that may hit a pause button to this market’s long-term upward trend.
Government spending and private capex will be the key driver for economic growth for the next few quarters.
Which sectors within the mid- and small-cap segments look attractive to you and have investment opportunities?
Though we would still like to have more exposure in the large-cap space since we are bullish on cement, IT, and FMCG at large, within this space semi-large cap names can be assessed for their valuation and exposure can be taken accordingly.
Consumer durable space has underperformed. Looking at the growth in the housing sector, consumer durables stocks now at an inexpensive valuation can also be an excellent addition to any midcap basket.
The Budget has given greater impetus to capital spending. In view of this, which sectors are you bullish on and would look at increasing your exposure?
As expressed earlier that government spending and private capex will be the key driver for India, and the biggest beneficiary of this will be infrastructure and capital goods space.
Well, both these sectors may take a hit if interest rates continue to rise further, it will be prudent to take exposure to market leaders in respective sectors at dips.
What are your takeaways from the Q3 results announced so far?
Earnings were slightly below what market participants anticipated and it was one of the reasons for our recent underperformance. However, the gap between expectations and actuals was not huge. In our preferred sectors Cement, IT, and FMCG, earnings were inline and earnings growth prospects are still quite encouraging.
Banking and energy space results didn’t help to uplift the market segment. For FY24 and more so in H2FY24, we believe the banking space would drive growth with corporate credit picking up. If input cost pressure eases then commodity and energy space too may show good growth in earnings.
What is your take on new-age technology stocks?
Honestly, it’s not easy to assess these businesses. Cash burn models have tested investors’ patience enough and new investors are now looking beyond top-line growth.
If we see a correction from highs then it looks significant, however, on conventional valuation metrics, these stocks have still not reached a sane valuation zone. We will continue to avoid this space.
Given the expected volatility in equities in the near term, how do you expect foreign and domestic flows to play out?
Debt has become attractive. US bond yield continues to climb above 4.00%. Indian bond yields are stable around the 7.50% mark.
With the FED determined to raise interest rates further, inflation is bound to reduce sooner or later due to slowdown inflicted by higher rates. This will eventually put pressure on yields making money naturally move towards bonds.
So, we are not expecting any big wave of funds hitting equity markets any time soon. However, India being a bright spot on a global economic map, there is a high probability that within equity, allocation towards India will increase.
For domestic participants, FD rates are still not very attractive and we expect their discipline investment process of doing SIPs will keep domestic mutual fund managers occupied.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)