Anil Rego of Right Horizons
As electric vehicles (EVs) gain traction, growth momentum is likely to be higher, and there will be multi-bagger opportunities for OEMs and auto ancillaries, believes Anil Rego of Right Horizons PMS.
In an interview to Moneycontrol, the the founder and fund manager shares that his Right Horizons PMS is positive on TVS Motor, Mahindra & Mahindra, and Sona BLW Precision Forgings in the auto space.
Rego, a pioneer in the contrarian style of investing and a seasoned investor for over three decades, says that over a longer time, in the IT space, they are positive on specific stocks like Infosys that will be driven by deep digital positioning, strong growth momentum, and attractive valuation.
Excerpts from the interaction:
Do you expect better corporate earnings for the September quarter?
We expect corporate earnings to improve sequentially as commodity inflation is finally softening and will likely continue with a global slowdown and supply-chain bottlenecks are easing.
We expect the input cost pressure to soften too and improve margins across sectors. On a sector-specific level, we are bullish on the consumer space.
Are you still comfortable with valuations in auto companies after the recent run-up? Also, is it better to bet on auto ancillaries than OEMs?
The two-wheeler segment has remained sluggish for a while and is expected to see a good uptick this festive season. While passenger vehicle (PV) demand remains strong, supplies are improving sequentially. Commercial vehicle (CV) demand remains good, and tractor demand is also expected to improve.
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Improving chip supplies coupled with stable demand would aid PV wholesales. Demand has been improving post-monsoons, with original equipment manufacturers (OEMs) continuing to offer discounts to gain market share. With electric vehicles (EVs) gaining traction, growth momentum is expected to be higher, and we see multi-bagger opportunities for specific OEMs and auto ancillaries.
We are bullish on the sector and stock specific. We are positive on TVS Motor since we believe it will be able to sustain its growth momentum and grow ahead of the industry, driven by new product launches in ICE & EV segments and its revamped product portfolio. Mahindra & Mahindra for its core auto and FES segments and Sona BLW Precision Forgings in the auto ancillary space.
Do you think the market will find it tough to surpass its record high by the end of the financial year?
We have witnessed India doing better than expected compared to many countries under the pandemic and geopolitical tensions. The deleveraged corporate sector and a well-capitalised and profitable banking system augur well for the Indian companies, and we expect the significant domestic demand can moderate a global slowdown and act as the driving force for the Indian markets too.
Are you increasing your positions in the banking & financial services space?
The operating performance of banks in the first quarter of FY23 demonstrated a positive stance on advance growth and credit cost outlook.
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The government has put in place adequate plans for infrastructure development to enable quick capital spending boosting demand for infrastructure financing. Growth momentum remained strong, propelled by healthy trends in the corporate portfolio. We have a favourable view of the banking sector as growth in retail, business banking, and the SME segments is expected to continue.
Are you still cautious in the IT space? Valuation-wise, are these stocks still trading above averages despite significant corrections?
We have a neutral view on the sector in the short term. However, we believe that Indian IT businesses can leverage their margins due to the industry’s size and the cost structure’s flexibility. EBIT Margins have moderated in the last few quarters, led by elevated attritions and supply side pressure.
Over a longer time, we are positive on specific stocks like Infosys that will be driven by deep digital positioning, strong growth momentum, & attractive valuation.
Do you see any sign of cooling down the domestic inflows in the coming months?
The strong inflows from domestic investors, both through mutual funds and direct investing, had helped cushion the market fall caused by record selling by foreign investors. Retail investors continued faith in equity even as stocks corrected sharply from their highs and higher inflows by DIIs in CY22 was in financials, IT, consumer discretionary, auto and oil & gas, which leads us to believe that investors are in for the long term and domestic inflows will continue.
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Do you see the rupee depreciate up to 85 to a dollar in the coming weeks? The weakness in several leading currencies against the US dollar is a risk for global equity markets.
As the US dollar tests, multi-decadal highs, emerging market economy currencies are thrown into disarray, and liquidity is getting sucked out of both equities and bonds. The spillovers from the hawkish tone of the Fed will affect economies in matters of currency depreciation, capital outflows, reserve losses and financial instability; however, India, compared to other emerging market economies, are far less vulnerable.
RBI has used the record forex reserves built in 2021 to intervene in smoothening volatility. While RBI does not target a specific exchange rate level, the reserves of $ 537 billion should help moderate rupee depreciation.
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