“The most disappointing sectors would be automobiles, especially four-wheelers, cement and infrastructure due to extended monsoon season, and FMCG due to lower demand due to food inflation,” he says. Edited excerpts from the chat:Do you think it is an appropriate time to start selectively picking railroad and defense stocks that have seen a lot of corrections in recent weeks?
Investment should only be considered when there are clear signs of a turnaround, which most defense stocks currently lack. Since only a few exceptions show some degree of stability, it is better to wait for stronger signs of recovery.
I think there will be significant consolidation going forward for the Rail & Defense theme, which has seen fantastic growth over the past 18-24 months. Current valuations are higher. Once this integration is complete, you will be able to view it again. We must remember that both themes have a longer gestation period in terms of order to delivery, and what we have seen is a valuation that is 3-5x higher than its global peers, especially in field, due to the order book-based run-up. You must remember that you received . For railroads, consolidation may be completed earlier than its defensive competitors.
Investors who were investing in railway and defense-related PSUs and facility investments are now looking for new themes. Where do you think the puck will be?
Going forward, we see traction in three sectors: healthcare, premiumized consumer discretionary, and financials with the non-lending space. Among the dominant themes, power will remain strong and manufacturing, especially in electronics and components, will continue.
Markets have been highly concerned about the impact of tensions in West Asia, movement of FII funds to China, and high valuations. How strong do you think China’s resurgence story will become? Is it just a tactical deal or a long-term play?
In the fund management community, opinions seem to be divided on the China play, with some seeing the Chinese government’s stimulus plan as reality and fishing for the bottom, while the other half accept it as a tactical ploy. Ahead of the US election, it is believed that the trade war will see China become more aggressive, as currently seen in the European Union, and that the same factors will continue to apply regardless of who is in power.
Smallcaps are having a tough time. Do you think most of your suffering is over? Or do you think there’s more bubbles left in the market?
From a broader perspective, small-cap stocks have had a tough time since the start of 2024, but certain sectors have performed well, including specialty chemicals, financial services and especially the wealth management bouquet. Going forward, we could see stock-specific action and to some extent sector-specific action in metals, consumer discretionary, power sector-related manufacturers, asset management, pharmaceuticals and healthcare.
Hear your expectations for second quarter earnings season. Which sector do you think will be the most disappointing?
The second quarter is likely to remain largely an underperforming season for Nifty50 in single digits. The most disappointing sectors are automobiles, especially four-wheelers, cement and infrastructure due to extended monsoon season, and FMCG due to slowdown in demand due to food inflation.
How optimistic are you about gold and silver, given the valuations we are trading in and the global environment? Where do you see the two precious metals headed for the remainder of the fiscal year? Is it time to increase quotas?
As U.S. debt soared to record highs, gold was largely the central bank’s go-to. The second factor is that geopolitical risks due to the Middle East and the Russia-Ukraine conflict continue. Until the above factors activate, we can see continued demand for precious metals, including gold and silver, in FY25 as well.
What is the best asset allocation strategy you would recommend to someone with a moderate risk profile?
Given India’s optimistic macro-structure with various institutions including the World Bank and IMF predicting a GDP forecast of 7%, stocks would be an ideal choice. Allocations may vary by sector and market capitalization. For moderate risk takers, stock selection can be done from emerging themes of Nifty Midcap and Nifty Next 50 Indexes, which appear to be ideal choices for investment.
