ETMarkets Smart Talk: Why capex-heavy stocks should be part of your portfolio in FY24, explains Ashish Chaturmohta

In an interview with ETMarkets, Chaturmohta said: “Some allocation towards capex oriented stocks, banking stocks as they would be the ultimate beneficiary for turning the economic cycle, etc should be a significant party of the portfolio,” Edited excerpts:

What is your take on markets amid global and domestic headwinds? We are already down by over 5% from highs but are fast catching up.
The headwinds can be categorized as global and domestic. In terms of the global outlook, the major concerns revolve around inflation and interest rates.

However, the headwinds are known to the world and expectations are of a soft landing of the economy, keeping in mind the recent SVB turmoil and layoffs in the IT sector.

Further, coming to the domestic front, RBI’s recent rate pause for the time being and trimming down inflation expectations for the next year, highlights the resilience in the domestic economy.

Additionally in India, we have a few state elections starting with Karnataka in May 2023 followed by a few states in a few months and the Central election in May 2024, hence we might see government expenditure and private expenditure at par.

Hence, in a nutshell, things are better in the domestic front as compared to the global front.

What do you make of the RBI policy statement? Have the interest rates peaked and now we could see a lowering of interest rates?
RBI’s policy highlights India’s resilience as compared to the global economy. RBI rate hike started from 4.00% in April 2022 to 6.50% in Feb 2023 before taking a pause in the April 2023 policy.Hence, the rate hikes needed for the time being seems to be enough to curtail inflation. However, RBI’s policy clearly highlighted that the decision was mainly w.r.t. the current economic situation present domestically and globally, which if changed, the RBI wouldn’t shy from going back to the rate hike cycle.

Hence, it’s too early to say if the interest rates have peaked, but we are surely reaching the destination.

How should investors position their portfolio in FY24?
The FY24 would be a year of consolidation. In FY23, we saw too many events and repercussions of the same on the economy and we also witnessed proactive decisions from various countries to combat the same.

We believe the current FY would be Capex focused as India is doing all the right things to be a part of the global supply chain.

Hence, some allocation towards capex-oriented stocks, banking stocks as they would be the ultimate beneficiary for turning the economic cycle, etc should be a significant part of the portfolio.

Do you think a rise in crude oil prices could materially impact performance of India Inc. and then in turn markets? Some analysts are pegging the crude oil to touch over $100/bbl.
In FY22 and through FY23, we saw crude rallying towards $120/bbl and then being on a downward trajectory thereafter.

India is a dependent import of crude oil and billions of dollars of Forex are spent for the same, hence due to the same the current government is focusing on EVs, Hydrogen cars, CNG/Gas being a significant chunk of energy consumption, ethanol blending, etc.

However, India has been able to buy crude from Russia at lower prices and has been able to cushion itself from extreme volatility.

The pricing of crude oil is a factor of macro events, demand-supply issues, and OPEC supply cuts/increased production, hence it’s difficult to give a view on the same. However, India is well prepared as it has alternative suppliers and aggressive ethanol blending etc, which would support India in the time to come.

India is not cheap and so are the companies. How should investors pick stock in FY24? Should investors focus on growth or value stocks?
India has always been an expensive emerging market owing to the high GDP growth as compared to the other economies and we would continue to remain expensive.

There has always been a debate on growth v/s value and both have performed respectively, at a certain given point of time.

Post, interest rate hike cycle, i.e in the last few months, many value stocks have given high returns, and growth stocks have seen a correction owing to macro uncertainties.

However, we investors should have a mix of growth and value, as different stocks have different rationales and they perform at their given point of time.

How do you filter stocks for your portfolio?
A hygiene check is the basic criteria, wherein all the profitability matrix, return ratios, and liquidity ratios, valuations, etc are screened.

Post this basic check, we do a deep dive of the business model and check on the macro environment/sector outlook etc (Ex – In the EV theme, there is government support and consumer demand, hence outlook and demand). Post this, a technical check is given to the same to substantiate our view.

Do you see value creation in the manufacturing space given the govt emphasis remains strong?
India is going to be a major part of the global supply chain. The government has taken all the right steps which include PLI, tax incentives, quicker project approvals, etc.

Hence, in the next few years, we would see tremendous asset creation which would lead to higher job creation and would indirectly increase the GDP.

FIIs seem to be turning back to India. Do you see this as just a one-off scenario or does the trend seems to be reversing?
The FIIs have been net sellers through CY21 and CY22. Hence, the major profit booking/exit owing to global QT is nearing its end. However, it all depends upon the global outlook.

What are your expectations for the March quarter earnings? Which sector(s) is likely to lead the profits and which ones will be in the laggard category?
In the March quarter, infrastructure and capex activities is expected to perform well, hence cement, pipes, wires, and cables, etc should post good numbers.

Further, banks would witness high loan growth and NIM expansion. We would see an average performance in consumption stocks as rural demand hasn’t picked up and would impact volumes.

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