Rajesh Kothari, founder of AlfAccurate Advisors, a smallcase registered investment advisor, says inflation is undoubtedly a worry for most companies from the automobile to the consumer sector.
The industrial sector delivered a robust set of numbers, surpassing street expectations, and sounded optimistic about future capital expenditure, which is a good positive surprise for the market, said Kothari, who has over 25 years of experience in the Indian capital market. He remains positive on the capex story. Edited excerpts:
Q: What is your reading on earnings and have you seen more upgrades than downgrades?
Q2FY22 results of corporate India reconfirm our view on the revival of the earnings cycle. Despite cost pressures, earnings beats have outpaced earnings misses so far.
While the technology sector benefited from the rising digital transformation wave, consumer optimism resulted in strong growth in the retail sector. Banking sector also did reasonably well, driven by steady growth in loans and upgrades in asset quality.
Q: Have you seen any big risks in the September quarter earnings season? What other risk factors should one be aware of now?
Inflation is undoubtedly a worry for most corporates from the automobile to the consumer sector.
Q: Have you spotted sectors/themes to consider for portfolios now or continue holding in portfolios after the September quarter earnings?
The industrial sector delivered a robust performance, surpassing street expectations, and sounded optimistic about future capex – this is a good positive surprise for the market. We continue to remain positive on the capex story as we believe that capex which was muted over the last 5-10 years will revive, backed by:
1) Corporate India has deleveraged significantly during FY21
2) Centre and state capex have seen an uptick in the first four months of FY22 and will continue to accelerate throughout the year, led by higher tax buoyancy
3) Key industries like power, steel, cement and refineries are expected to spend Rs 6,10,000 crore in FY22-24E versus Rs 3,22,700 crore over the previous three years.
4) PLI (production-linked incentive) schemes by the government will lead to additional capex of Rs 1,40,000 crore.
Q: Do you expect the market to consolidate now till the Union Budget 2022 and state elections (Punjab and UP)?
Time in the market is more important than timing the market. We spend our time and resources on the identification of the next multi-baggers rather than focusing on how markets will look in the next 3-6 months. Corrections are always welcome. They remove the excesses and provide an opportunity to enter for long-term gains.
Q: Do you think macros and micros are firing on all cylinders?
Well, most indicators are showing positive signals and a few indicators are yet to improve. But broadly, the direction is positive.
Q: What should be the investors’ strategy given the flood of IPOs?
We would like to inform investors that do not buy into an IPO for trading gains. Do research well and keep a time horizon of a minimum of five years while subscribing to IPOs.
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