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Informist, Wednesday, Dec. 4, 2024

 

By Anshul Choudhary

 

MUMBAI – The corporate earnings in the second half of this financial year are likely to be much better than the first half as government spending increases and consumption improves, Nitasha Shankar, head of equity strategy at YES Securities, told Informist in an interview. Considering this, she said markets are likely to recover sometime in January, once the December quarter earnings season starts, or after the Union Budget early February.

 

There is a possibility equity markets may fall more as foreign investors are unlikely to turn buyers before the long holidays in December, and it presents a good opportunity for investors to accumulate quality stocks with several available at a discount, she said.

 

"It is not a knee-jerk reaction...you are seeing that correction happening and it is still continuing. At least till January, I do think it will continue," she said, while mentioning that investors can use this opportunity to keep reducing their average buy price. Shankar oversees coverage of nearly 350 companies, with active coverage of 144 companies.

 

Shankar finds value in affordable housing finance companies as she expects a rise in demand for affordable homes and the sector is still under-penetrated. She acknowledged that some of the non-banking finance companies have seen their asset quality deteriorate, but pointed out it was largely limited to microfinance institutions and that home finance companies were relatively better.

 

Within the financial space, she is bullish on companies focused on retail financing and large private banks. Having said that, she advised to curtail expectations related to growth in low-cost deposits and said the days of banks having 50% of their deposits as current account savings account deposits were now over.  

 

Among others, she was bullish on infrastructure companies that have a strong order book. She said the energy space presents an opportunity to invest in ancillary companies as well, such as companies making wires and pipes.

 

Shankar is also positive on agrochemical companies, which largely sell fertilisers, fungicides, and pesticides, as demand for these has not declined. However, within the chemical space, she advised avoiding specialty chemical companies as these are still facing issues due to high channel inventory.

 

"Demand from Europe is completely gone for most of the specialty chemicals. Till the channel inventory clears up, I do believe these stocks and the sector will remain under pressure," she said.

 

She also advised against turning bullish on the overall information technology and rather look for stock-specific opportunities. "...still no indication that there is a return as far as the discretionary spending on the IT side is concerned," she said, while adding that there is no clarity over demand in near term but the sector is strong considering an investment period of 4-5 years.

 

MARKET CORRECTION

Shankar was unfazed by the recent correction in equities and disappointments from the Jul-Sept earnings. She said expectations were extremely high to begin with. "Because the macros were coming out so good, people were revising their target upwards, eventually the targets become so high that even a slight miss looks disappointing," she said. On Wednesday, the Nifty 50 closed at 24467.45 points, flat compared to Tuesday, but down nearly 7% from its lifetime high it hit on Sept. 27.

 

She said investors were largely disappointed by weaker-than-expected volume growth on the consumption side and disruption in order inflows due to the election. Further, recovery in rural growth also got delayed due to heavy monsoon and high inflation, she said.

 

All of this happened when valuations in India were stretched and at the same time, US treasury yields became attractive, she said. Since October, the yield on the 10-year US bond has risen over 40 bps, which settled at 4.23% on Tuesday. On record outflows by foreign investors in the past two months, she said it was merely profit booking after a bull run that lasted almost three years. "If you look at FII pulling out money, it is less than 10% of their total investment in India. They have not really pulled out any significant amount...booking profits is a prudent thing especially when valuations look optically high," she said.

 

Now that election-related effect on order flows from the government is behind us, and there is a possibility that food inflation may fall owing to a good Kharif crop, Shankar is positive that the second half of this financial year will be better.

 

Shankar said she is still seeing companies under coverage report better margins, return on equity, and return on capital employed. Further, she said companies under their coverage are either spending on improving utilisation, increasing capacities or removing bottlenecks. She acknowledged that spending by private capital expenditure is still not huge, and expects significant improvement in spending to take at least 12-15 months.

 

Despite the correction in markets, Shankar said she hasn't seen panic among domestic investors. They seem to be more supportive of equities now compared to the negative sentiment after Russia-Ukraine war, she said.

 

"They want to look at the fall as their friend this time around...Although, they are not committing very high amount but this time, panic level is not there, and they do believe the markets would go up," she said, while mentioning the interest is still skewed towards mutual funds and alternative investment funds compared to direct investment in stocks.  End

 

Edited by Deepshikha Bhardwaj

 

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