It has been a good comeback for the market – 18-19% from the recent low. In July, it appeared nothing could go right. Now it appears nothing could go wrong. Why are we seeing such sharp movements on both sides?
In the first fortnight of June, the market was positioned at a very base level and the market had initial expectation that Russia would not be able to export. So a lot of inflationary pressure was building in. The assessment which has come is that except for gas, Russia would be able to export everything at the normal level. So inflation has started coming down.
India was among the first countries to peak inflation at 7.9% and for the two consecutive months, we are seeing the reading at a lower level. As the inflation peaked out and commodity prices started correcting and valuation was at 15,400 or 15,200 sub 16 times on FY24 basis, the risk reward was looking good and we have seen a great recovery in the market.
As we look into FY23, FY24, where are you picking your spots? Are you keeping it simple with cyclicals and banks or is it time to reorient everything?
I am quite optimistic about industrial and manufacturing pack where because of the government focus on PLI and China plus one diversification, apart from what has happened, the commodity producing companies in the last two years have made great profits and their repaired balance sheet.
So they are also investing to improve the efficiency and we are also seeing good investment on the renewable side in India and automation. Industrial and manufacturing is one space I am quite overweight as also autos and auto ancillaries because we are seeing a good correction in the commodity prices.
« Back to recommendation stories
When you talk about auto and auto ancillaries, some of these stocks are already sitting at close to their life-time highs or 52-week peaks. Are you staying with the leaders in the two-wheelers, passenger vehicles space, now with an EV tilt? What do you like within autos?
I would recommend a broad-based approach in the portfolio because we are seeing that every company, even two-wheelers and companies are oriented towards EVs. There is still room to increase. I would go across-the-board. The benefit of the fall in commodity prices will start reflecting in numbers from Q3 onwards. So now, valuations are at a reasonable level. If the top line comes in, there is a good room for rerating in the sector.
Does it make sense to take a tactical call here? Nifty had a steep climb and we are now just about 3.5-4% odd away from all-time high. However, the mid and smallcaps have still lagged the smallcap index by a huge margin of 20%. Would you want to increase allocation to small and midcaps?
That is an interesting point. I have generally seen that whenever the interest rate cycle starts peaking and there is a moderation in interest rates, generally the smallcaps tend to outperform and till mid June, the small cap index had the highest beating. It has corrected by close to 28% odd from the peak. Still it is down by 7% from the peak but there is a good recovery in smallcap as the 10-year G-sec in India has peaked and now we are seeing some moderation in that.
There is still room to invest into smallcaps at this point of time but the great move will start looking up whenever we see the interest rate cycle peaking out. I would say that from now onwards, the staggered approach is the right way rather than just putting big money into smallcaps.
Industrial and manufacturing is one space I am quite overweight on. Similarly in autos and auto ancillaries, we are seeing a good correction in the commodity prices and also cheap availability will incrementally start improving.
Some of the auto, auto ancillary stocks are already sitting at close to their life highs or their 52-week peaks. Are you staying with the leaders within two-wheelers, passenger vehicles and now with an EV tilt?
Currently I would still recommend to have a broad based approach in the portfolio because what we are seeing every company even like in two wheeler and companies are orienting towards EV and penetration still there is a room to increase so I would really go across the board. What we are seeing that the benefit of the fall in commodity prices will actually start reflecting in numbers from Q3 onwards actually so now valuations are at a reasonable level I think if the top line comes in so there is a good room for rerating still in the sector.