Auto, cement, telecom, PSU banks to see earnings upgrade, says Vinod Nair of Geojit

Market Outlook

Vinod Nair, head of research, Geojit Financial Services, says earnings will stay healthy in FY22 as the domestic and the global economy open further. With the Budget going big on capital expenditure to shore up growth, the domestic economy will see an uptick.

He advises a fair mix of defensive and growth-oriented themes in the portfolio. Growth and cyclicals should be bought because of their cheaper valuation and traction in business, Nair says said in an interview to Moneycontrol’s Sunil Shankar Matkar. Edited excerpts:

Q: How do you view the December quarter earnings? Have you seen more earnings upgrades than last quarter and will the these continue in FY22?

Q3 is much better than Q2 in terms of both forecast and upgrades. For example, the Nifty50 consolidated PAT was expected to grow by 8-10 percent on a QoQ and YoY basis, which in reality was at 17-20 percent. This traction is bound to stay healthy in FY22 due to the further opening up of the global and domestic economy and higher capital expenditure in the domestic economy after the reformist budget.

Q: What are the sectors one should avoid now, especially after the December quarter earnings and why?

We are not in a position to avoid looking at certain sectors because we need to have a balanced portfolio in an expensive yet growing economy. My view is that there should be a fair mix of both defensive and growth-oriented themes. Although defensives are expensive, they provide safety to the portfolio and avoid short-term volatility. Some sectors like FMCG, IT, consumer durables and cement are highly expensive. Hence, lower exposure is suggested to those sectors as these are tilted more towards growth and cyclical ideas.

Q: Which are the sectors that should be bought after the December quarter and why?

Growth and cyclicals should be bought because of their cheaper valuation and traction in business. High upgrade is seen in sectors like auto, cement, telecom, chemicals, metals and PSU banks. Among these sectors, auto and cement sectors are expensive on a near to mediu- term basis. While a slowdown in PAT growth is seen in pharma, NBFC, power and construction, it is likely to improve in the coming quarters.

Q: Every dip has been bought into. Do you think it is still a buy-on-dips market? Will the momentum continue in the coming weeks?

Yes, it is a buy-on-dip market because a lot of long-term benefits are factored in the prices. At the same time, there are pockets which are expensive and inexpensive, too. So, it is more about balancing your portfolio. Global sentiment will play an important role in deciding the short-term trend, which is becoming mixed due to a weakening European market and modest gains in the US market with a hope for more fiscal stimulus.

Q: Do you think the government can meet its targets set in the Budget? Do you think this Budget will help India become a $ 5-trillion economy by 2024?

Well, we have lost one year due to COVID-19 and some global impact is bound to stay for the next two-three years. Our nominal GDP growth will be negative in FY21 by 4-5 percent. If we assume a nominal GDP growth of 15 percent assuming Re 1 depreciation to INR/USD, the target will get delayed by one-two years, depending on the catch-up in the economic cycle and teh rupeee movement.

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