Equirus Securities is cautious on export-driven sectors, given the recessionary concerns globally, except sectors where India is benefitting from China+1 sourcing, Ashutosh Tiwari, Managing Director of Research, says in an interview with Moneycontrol.
However, domestic demand is expected to remain healthy, driven by the expected improvement in rural demand post normal monsoon and government spending on infrastructure, he says.
Tiwari, with over 10 years of experience in equity research and three years in manufacturing, finds more value in autos, cement, real estate and infrastructure segments.
Autos are coming out of three years of cyclical downturn and hence next three years are expected to be good, while margin improvement will be another lever of earnings growth in industries where margins were impacted by a sharp rise in commodity prices, Tiwari says.
What do you broadly expect from the Jackson Hole Economic Symposium scheduled to be held over the coming weekend?
The expectation is that Fed chairman Jerome Powell is likely to underscore that the inflation battle is far from over, Fed is committed to bringing inflation down, which is also the FOMC (Federal Open Market Committee) consensus and that rates could stay elevated for longer. That pause after the peak could be for longer unless inflation cools down faster. Consumer spending is showing signs of slowdown due to inflation and it might impact GDP growth as well next year.
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Do you think the market looks worried about rising expectations for another 75 bps interest rate hike by Federal Reserve in the September policy meeting? Also, what indication do you get from US dollar index?
The market does seem to be a bit more concerned about a 75 bps rate hike in the upcoming meeting, post Fed official comments. The current probability of a 75 bps hike is now 58.5 percent, which was around 40 percent over a week ago. The strengthening dollar index is an indication of risk-off trade and is generally negative for commodities and emerging market equities.
Considering the global as well as the domestic environment, what are the indications you are getting from current market levels?
Markets across the globe have rebounded in the past month from their lows as inflation has started to cool off a bit. However globally we are still not out of woods as far as rising interest rates and economies’ slowing growth is concerned. Given the recent rally, some consolidation is likely in Indian markets. However, we are better placed versus other emerging markets due to high domestic flows and the fall in commodity prices.
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Given the global growth concerns, do you think India’s earnings growth trajectory is expected to be driven by domestic recovery over the next year?
We are cautious on export-driven sectors given recessionary concerns globally, except sectors where India is benefitting from China+1 sourcing. However, domestic demand is expected to remain healthy, driven by the expected improvement in rural demand post normal monsoon and government spending on infrastructure. Softening of commodity prices will also lead to improvement in operating margins in many sectors as margins compressed over the last 1-1.5 years due to higher raw material prices as well as freight costs.
Which sectors are still showing the value of investing opportunity even after a significant run-up from June lows, and why?
We are more positive on manufacturing related sector as after almost a decade capex is expected to revive in India, and sectors like industrials, capital goods, real estate, building material and infrastructure are expected to do well. Autos are also coming out of three years of cyclical downturn and hence next three years are expected to be good. Margin improvement will be another lever of earnings growth in industries where margins were impacted by a sharp rise in commodity prices. Manufacturing-related sectors mentioned above along with cement are likely to benefit from the same. Overall, we find more value in auto, cement, real estate and infrastructure.
Do you see deep value in select stocks in the consumption space?
Certain mid and small cap companies in consumption are decent bets as earnings have been hit by commodity-led margin compression, which should normalise going ahead.
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