September 2021 quarter earnings season will begin next month. Ashutosh Tiwari, Managing Director-Research at Equirus Securities feels rural demand remains impacted vis-à-vis urban and therefore demand in rural dependent sectors might be weaker year-on-year (YoY).
The September quarter is likely to see margins compression across many sectors due to commodity inflation, said Tiwari in an interview with Moneycontrol’s Sunil Shankar Matkar.
Ashutosh, who has over a decade of experience in equity research, believes that stocks from sectors like real estate, building material and industrials should do well over coming years. Edited excerpts:
Q: September 2021 quarter earnings season will begin next month. What are your broad earnings expectations for Q2FY22?
After Covid 2nd wave impact in Q1FY22, this quarter should see sequential recovery however rural demand remains impacted vis-à-vis urban and therefore demand in rural dependent sectors might be weaker YoY. However this quarter is likely to see margins compression across many sectors due to commodity inflation.
Q: Given the market at record high levels with the Nifty50 moving towards 18,000 mark and BSE Sensex nears 60,000 levels. What should be the strategy one should follow?
Investors should be selective in stock picks and should avoid over valued stocks.
Q: What are the pockets that one can look for investment right now and the same could give hefty returns in coming years?
We expect cyclical recovery in manufacturing led by capex revival in sectors like metals and investments in infrastructure, construction. We are also seeing good pick up in real estate after almost 9-10 years. Therefore we believe that stocks from sectors like real estate, building material and industrials should do well over coming years.
Q: With a multibagger gains in the benchmark indices and broader markets from March 2020 lows, should one reduce the exposure to equity to some extent now?
We would advise to move money from expensive stock to some of the sectors highlighted above.
Q: Do you think it is an expensive market? Can you explain the parameters that say the market is expensive?
We cannot say that entire market is expensive, however there are certain sectors where stocks have become very expensive like chemicals or some digital platform related stocks. Some of these companies in trading at 40-50x FY23 EPS which is definitely on the higher side and investors should avoid these
In case of euphoria investors extrapolate near term earnings momentum to be permanent and start justifying higher multiples but markets course corrects these things. In the initial phase of Covid last year, same had happened with consumer staples and pharma.
Q: Realty sector rallied more than 31 percent in last one month. What are key reasons for rally? Do you thing one should be cautious now or one can still invest at current levels? Is it a multibagger story?
Real estate is coming out of deep cyclical downturn which lasted almost 8-10 years from 2011-12 to 2020. We believe that following factors are conducive for real estate sector recovery over next 4-5 years: 1) with sideways movement in prices over this period, affordability improved, 2) low interest rate scenario is conducive for recovery, 3) RERA (Real Estate Regulatory Authority) has led to reduction in un-organised players. Considering these factors we believe that every correction in real estate stocks should be good opportunity. The investors who are looking at sector for medium to long term perspective can buy stocks even at current levels.
Q: Do you think India stock market should be worried for Federal Reserve’s expected tapering? Will the tapering impact FII flow to India?
While near term corrections cannot be ruled out due to tapering news, we believe that India is at an inflection point from 5-year growth perspective driven by pick up in manufacturing and greater export opportunity emanating from China + 1 strategy of global companies.
Q: What is your investment mantra for new investors?
Avoid the noise and look at fundamentals of company in terms of earnings growth and cash flows before investing in to stocks. It’s important not to pay very high multiples and play with some margin of safety.
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