· Market has witnessed good broad based bounce-back after the Government’s announcements on various fronts in the last 2-3 months. Some of the positive announcements have been reversal of tax surcharge on FPI investors, Corporate Tax cuts, measures to enhance liquidity, PSU bank mergers.
· The sentiment has turned positive, overall liquidity is improving, MSCI weightage for India has increased and Retail+HNI participation is high.
· Most stress in Auto & NBFC is over. Markets will be driven by earnings which seem to be back on track.
· Historically when P/E is depressed and earnings grew, markets have done well. Right now, P/Es’ are at reasonable levels and thanks to government initiatives earnings are starting to pick up.
· Monsoon has been longer than usual which has affected kharif crops but reservoir and underground water levels are good and so outlook for agriculture is good.
· Auto – The sector has suffered due to earnings de-growth and P/E compression. Earnings were hit as all sub-sectors CV, PV and 2Ws slowed down together. But after production cuts, inventory with dealers is decreasing and sentiment is improving. We are neutral to positive on this sector going forward as we believe that as earnings start coming back, this sector will start looking up.
· BFSI – Insurance companies did well as they were undervalued and they were re-rated. There is a clear demarcation in valuations of PSU banks, Private Banks, NBFCs and Insurance companies. NBFCs with strong parentage and robust retail books continue to look good. Select retail and corporate banks continue to look promising.
· Construction & Cement – This sector is struggling as the Government capex has slowed down especially in states like Andhra Pradesh. Valuations are reasonable and expect a re-rating of the sector soon. Cement is expected to do well given the focus on infra spend.
· FMCG + Consumer Discretionary – This sector is expected to be one of the greatest beneficiaries of corporate tax cuts as most companies were paying full tax. Many companies in this sector are expected to go through an earnings revision.
· Metals – We are not very constructive on this sector so donot own much. We also donot expect big uptick in earnings as global demand is weak.
· Oil & Gas – Fairly valued currently, have built up exposure in Reliance.
· Pharma – Good opportunities available, some stock specific events hurting valuations but haven’t hurt stock prices due to already low multiples. Prefer owning Domestic Pharma. Pharma stocks added over the past year have given good returns.
· IT – Expect stable earnings growth in low double-digit.