Sahil Kapoor, Head – Products & Market Strategy at DSP Investment Managers feels India’s growth trajectory is likely to improve going ahead and may provide stable earnings trajectory for equity markets.
Currently, “a dovish central banks and middling economy is an excellent combination for equity investors. That’s the backdrop available today,” said Sahil Kapoor who has a wide ranging experience across asset class and businesses.
DSP Investment’s focus is always on investing with companies which provide good margin of safety on valuations, strong corporate governance matrix and excellent growth opportunity. “At this time we are scouting for opportunities in infrastructure, realty, industrials and core sectors in addition to existing performers from BFSI, IT and consumer discretionary space,” Kapoor said.
Q: Considering the expected economic & earnings growth, do you think the BSE Sensex and Nifty can be doubled from current levels by 2025?
While it’s a tough task to arrive at a number target for indices for 2025. we can look at earnings and valuations. At present the index is trading at 21 times 1 year forward earnings and would require earnings to compound at 18 percent to 20 percent CAGR while maintaining such high Price to earnings ratio. As a combination this appears a tall ask. However India’s growth trajectory is likely to improve going ahead and may provide stable earnings trajectory for equity markets.
Q: Have you spotted any themes which have to be part of portfolio from here on, and why?
A dovish central banks and middling economy is an excellent combination for equity investors. That’s the backdrop available today. We like growth companies which continue to deliver high quality of earnings. Our focus is always on investing with companies which provide good margin of safety on valuations, strong corporate governance matrix and excellent growth opportunity.
At this time we are scouting for opportunities in infrastructure, realty, industrials and core sectors in addition to existing performers from BFSI, IT and consumer discretionary space. We believe a mix of growth and lower interest rates are ideal for these themes.
Q: Finally the government announced moratorium of four years on payment of adjusted gross revenue dues for cash-strapped telecom sector. How will this moratorium help the sector and do you think it can solve the problem of the sector? What should be done to solve the sector’s crisis?
Since these relief measures are net present value (NPV) neutral they don’t significantly change the prognosis. It does however give more breathing space to telecom sector. It’s also an opportunity for the promoters of struggling telecos to infuse cash – without which the firm could keep losing market share and debt servicing capability. This also means that stressed telecos can manage with lower average revenue per user (ARPU) hikes. ARPU growth trajectory could remain muted but market share gains can continue for the players who are doing well.
Q: Several experts expect the bullish trend to continue for atleast next couple of years to four years. Do you agree with their view and why?
The underlying trend for stocks prices can remain positive because we are still in the early cycle for the economy. But the valuations are rich in some pockets at this time and we might see a phase of consolidation. It’s like stocks have moved the mid cycle while the economy remains in early cycle. This may take sometime to get resolved and lead to corrections and consolidation for sometime.
Q: Metals sector was the biggest outperformer in FY22 so far with 44 percent gains. Do you think the rally can extend further in coming weeks or is it the time to be cautious on the segment?
There are signs that metal prices have plateaued and are witnessing some correction. This is likely to have a sobering impact on some metals and mining companies. However the de-leveraging cycle is well underway and metal sector companies are showcasing excellent profitability profile and capex discipline. The opportunities will continue in the sector.
Q: Will the chip shortage issue be a spoiler for auto sector in current festive season? Also what is your view on the PLI scheme announced for the sector? Is it the time to add these stocks to portfolio?
The chip shortage situation has got aggravated given Covid lockdowns in South Asia and early signs are pointing to a likely to impact October-November production. We expect this to be a spoiler for the festive season.
PLI scheme – there is a marked difference between the initial thought from the government production linked incentive (PLI) and the way the final policy has come out to be. Not only have the incentive amount been halved but also the allocation is now towards Electric Vehicles and Advanced Automotive Technologies (read import substitution). As such as against the initial expectation that PLI will boost exports, the government is likely seeing it as a step forward from the FAME (Faster Adoption and Manufacturing of Hybrid and EV) subsidies and is now incentivizing electric vehicle (EV) production and advanced technologies.
The auto sector has underperformed this year given the problems of sharp increase in commodity prices, wave 2 lockdowns and now the semi conductor shortage. We expect these issues to be behind us in a couple of quarters. We like select four wheeler names and Auto ancillaries from a cyclical recovery point of view.
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