Mihir Vora on where to buy afresh in a booming mkt

Synopsis

“The pillars of growth which are domestic consumption, private sector capex and the make in India theme, will continue to drive the domestic economy and henceforth the markets and the profitability of corporates. We are talking about consumer discretionary, financials which benefit from the growth in credit, etc, and capex based on government and private sector spending.”

ETMarkets.com

“It looks like the bond markets are pencilling in a drop in inflation in the next couple of quarters. So if that is the stance that RBI takes, then we may see a sharp hike in the next meeting but then the tail of the hikes might be a bit soft,” says Mihir Vora, Director & CIO, Max Life Insurance.





It has been a fantabulous series and we are starting off a new one as well on a great note. The sectoral composition has gone through a 360-degree turn. Autos have been doing well, but now realty and some of the PSU banks have been added to that pack and even metals for that matter staging a comeback. Where do you find conviction to buy afresh, if at all?

We are still continuing with our theme of playing the domestic economy because we believe that though the Indian economy may slow down a bit in the second half, but it will still be one of the fastest growing economies in the world and it will still have 5-6% GDP growth as we exit FY23.

So to that extent, the pillars of growth which are domestic consumption, private sector capex and the make in India theme, will continue to drive the domestic economy and henceforth the markets and the profitability of corporates. So domestic versus global sectors still continues and within domestics, we are talking about consumer discretionary, financials which benefit from the growth in credit, etc, and capex based on government and private sector spending.

Smart Talk

Which pocket would you like to bet on right now? NBFCs have been reporting a good set of numbers, a case in point being the Bajaj twins.

In financials, a lot of pockets look good because valuations in this segment are still quite reasonable compared to pre-Covid levels. Of course, the bias is towards private sector banks but there are good pockets of value even in the NBFC segment.

The key driver is that finally we are seeing a significant pick up in credit growth and the commentary over the last couple of quarters for the private sector financials, the worst of the NPA issues are past us and some of the cases are also seeing write back from the older provisions that they have made in anticipation of some related hits.

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It is a good couple of quarters that we should see as far as asset quality is concerned and credit growth is any way picking up. Overall, it is a good macro backdrop for private sector financials as well as NBFC.

How have you read into L&T’s numbers? What have the key takeaways?

I will not be able to comment on the individual company results, We are quite positive on the traction that we are seeing in the engineering and construction space and also the capital goods space. Engineering construction basically is driven by government spending and to some extent, the good traction in commercial real estate as well as a little bit in corporate spending.

But mostly it is linked to government spending on infra, roads, etc. As far as private sector capex is concerned, we are seeing good pockets especially in the PLI linked sectors where capex should only accelerate in the next two to three quarters.

What is the outlook when it comes to the entire FMCG sector? How have you read into the overall consumption trends?

It has been a mixed bag in the FMCG space. I expect margin pressures to continue but that may or not reflect in stock prices because we had a significant long time of underperformance for the FMCG space. In the last three, four months, in spite of very high commodity prices in the last couple of months at least, they have stabilised and started moving up.

Rural demand is expected to do well, especially after the monsoon as we go into the busy season. While it may not be a spectacular sector in terms of absolute returns, it will tend to be defensive and less volatile going forward.

Are you getting more conviction on metals? The cycle has already played out once but is it time to bet on them again?

We are neutral on metals. While valuations are cheap, there is still a lot of uncertainty as far as Chinese growth is concerned. I do not think China has announced any major stimulus measures and they are also going into lockdown in some of the cities. China is by far the largest consumer of most of the basic metals and commodities. So while valuations are cheap, we are not too sure about the pricing power and the trends going forward

Do you have a view on what could happen in the coming monetary policy meeting? Do you expect this aggressive rate cycle to continue?

We do expect front-ended rate hikes. In the next policy, we are expecting a 35-50 bps hike in the interest rates. What will be equally important will be the commentary that the governor gives as far as his views on inflation is concerned, whether it is sticky or not.

At least as far as the global bond markets are concerned, it looks like the bond markets are pencilling in a drop in inflation in the next couple of quarters. So if that is the stance that RBI takes, then we may see a sharp hike in the next meeting but then the tail of the hikes might be a bit soft. That is the base case we are going with.

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