#39;ITC, Kotak Bank among 5 stocks which could create wealth in next 2-3 years#39;
Also, millennials are seen educating themselves about the importance of life insurance which would act as a catalyst.
Kotak Mahindra Bank:
Kotak Mahindra Bank would be a great business to invest in given the brand and respect created by the management by succinctly allocating capital to use.
ITC would be a good investment at this point. It is a sound company available at a fair price where the management is relentlessly working to improve its retail segment margins which can flair in the near term.
Q) What is keeping FIIs on the sidelines? They have turned net sellers in October as well? What are the big factors which are pushing them away from Indian markets?
A) “Uncertainty is a friend to no one” – FPIs were caught on the wrong footing when the exchequer brought the much-cheered corporate tax cut which overnight decreased the valuation multiples of frontline stocks, making Indian bourses more reasonable in terms of relative valuations.
That being so, FPIs have slowed down selling across Indian equities but have not turned buyers yet. There is every likelihood that they may turn net buyers after the Nifty50 corrects to around 11,000 levels.
Q) Equity mutual fund inflow hits a four-month low in September on profit booking. The total outflow has pulled down the asset base of the MF industry to Rs 24.51 lakh crore in September-end from Rs 25.47 lakh crore at end-August. A slowdown in domestic flows does not spell good news for investors – what are your views?
A) Taking an aggregate view of the mutual fund industry is not appropriate given the fact that around 35 percent of the AUMs are into equities on an AUM size of Rs 25.47 lakh crore base.
Liquid and debt funds are witnessing turbulent times because the economy is ailing under some sort of liquidity crisis. It is therefore natural to expect continued pressure on debt and liquid schemes in the medium term.
However, equity scheme flows are constant at around Rs. 8,200 crore a month which certainly indicates the confidence of retail investors in the equity market.
Q) What are your views on the September quarter earnings from India Inc? Do you think the recent cut in corporate tax rate will lead to more upgrades?
A) Corporate tax cuts will certainly lead to prolific onetime adjustments and not upgrades. However, at an aggregate level, revenues are expected to be slower on a YoY basis.
But, this will not act as a deterrent suppressing the mood of the market. Markets should begin pricing in the revival of the economy given the stupendous Government and RBI initiatives in place.
Q) Fixed income/liquid funds witnessed outflows in September which have been the case for many months now. What should be the strategy of investors while investing in fixed income funds? Important things to watch out for?
A) While investing in Fixed Income funds investors should check the portfolio of investments. The funds should be invested in fundamentally sound large corporates of India, only then one should commit to investing in such income funds.
Q) Which sectors are likely to lead the next leg of the rally for D-Street, and why?
A) The auto sector which faced a lot of flak recently will lead the next leg of D-Street rally with its vehicle scrappage policy.
Given the liquidity crunch and trust deficit in NBFCs, housing finance businesses should come back to become well-positioned biggies.
Q) Does it make sense to go overweight on consumption stocks after the Cabinet increased DA for government employees and the interest is heading lower? What is your outlook on Autos, consumer durable?
A) Dearness allowance to 17 percent which will entail an additional outflow of nearly Rs 16,000 crore may not be significant enough to create an impact on a Rs 2 trillion economy.
But, more than this, it sends out the right signal from the Government that they are using all their might to push economic revival.
Autos will get a boost only if the Government comes out with the scrappage policy and a reduction in GST to spur growth in this beaten-down space as this sector contributes a whopping 49 percent to India’s manufacturing GDP.
Q) Banking stocks have got plenty of attention from the investor community. What are the big reasons for the same?
A) Banking stocks are largely secular and defensive plays in the investor universe as interest income works 24X7 irrespective if the bank makes money or no.
However, the biggest challenge for any banking CEO is ‘asset management’. Due to slowdown and liquidity crisis, the banking sector is facing a lot of flux which is why investors have developed either extreme pessimism or extreme optimism on selected banking stocks which then underperforms or outperforms the index.
Q) Any particular sector which you are advising your client to avoid? If yes, what are the reasons?
A) The heyday for NBFCs are over and the valuation premiums these NBFCs used to enjoy will not come back. Additionally, the incremental growth which they were enjoying for the past couple of years due to the PSU bank clean up drive will not repeat and therefore, NBFCs should be avoided.
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