Naveen Kulkarni of Axis Securities
“The investment themes are banking, domestic consumption (both discretionary and staples), commercial vehicle cycle, and strong balance sheet. These are broad themes for this Diwali season,” Naveen Kulkarni of Axis Securities PMS says in an interview to Moneycontrol.
He feels the next year will be driven by various macro challenges, and companies with stronger balance sheets will deliver solid returns.
Indian equity markets are just 5 percent below all-time high levels. If the global markets are stable, then Indian markets have a good chance of hitting new highs by the end of the calendar year, as typically, volatility reduces during the November and December months, helping the markets touch new highs, says this Chief Investment Officer (CIO) with more than 15 years of experience. Edited excerpts:
Do you think the market believes that inflation has peaked now? Do you expect the market at a record high by the end of this calendar year?
Inflation today is both a global as well as Indian challenge. Inflation in the Indian context could remain at these levels and reduce slowly as far as headline inflation is concerned. But core inflation at 6.3 percent is not in a comfortable zone. In this context, considering the level of economic activity now, it seems likely that inflation could persist at these levels.
Global headline inflation largely seems to have peaked unless crude prices start rising post the US elections. However, the level of prices and inflation is still very high for the global market, which makes investors jittery.
However, the effect of higher interest rates will have an impact on demand, and inflation could come down faster-than-expected in the forthcoming months, helping the equity markets.
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Indian equity markets are just 5 percent below all-time high levels. If the global markets are stable, then Indian markets have a good chance of hitting new highs by the end of the calendar year, as typically, volatility reduces during the November and December months, helping the markets touch new highs.
However, it will depend on the Fed rate hikes and currency stability. Hikes in line with expectations will not be a problem, but unanticipated hikes will make the markets jittery.
Are you bullish on the defence and shipping spaces, given the expected order inflow and the government’s increasing focus?
Defence is a solid theme in the current scenario. Companies with defense will not only see orders from the Indian government but even export orders will be strong.
Shipping, however, is a mixed bag as there are challenges of global recession on one hand but a pick-up in replacement demand could be a good theme. We prefer the defense theme over the shipping segment.
Do you see the rupee plunging to 85-86 levels against the US dollar by the end of this calendar year?
It is difficult to gauge this scenario as it is led by more technical factors as people are looking at preserving their dollar purchasing power.
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However, the currency has to stabilise at these levels, and the rupee should even appreciate considering the strong domestic economy. But in the short term, further depreciation of the rupee on account of flight of capital cannot be ruled out.
Which are the sectors that benefit from this currency depreciation?
Export companies and IT companies are clear beneficiaries of currency depreciation. However, it is not very straightforward as other currencies have also depreciated against the dollar, and the challenges of the global recession are very evident.
Thus, while export companies could benefit, the demand scenario could be challenging.
Are public sector banks offering valuation comfort now? What are the preferred bets—private banks or public sector banks?
The valuation was never a challenge for public sector banks but the challenges were on account of growth and asset quality management.
The challenges of asset quality management are under control, but growth will not be ahead of the market. However, good PSU banks like SBI and Bank of Baroda are our preferred bets.
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What are the investment themes to bet on this Diwali, which can generate double-digit returns by the next Diwali?
Our investment themes are banking, domestic consumption (both discretionary and staples), commercial vehicle cycle and strong balance sheet. These are broad themes for this Diwali season.
The next year will be driven by various macro challenges, and companies with stronger balance sheets will deliver solid returns.
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