Gaurav Dua is the Senior VP, Head – Capital Market Strategy & Investments, Sharekhan by BNP Paribas
With new upcycle in auto sector, Gaurav Dua of Sharekhan by BNP Paribas believes auto and auto ancillary stocks have lot of catch up to do with benchmark indices.
He further believes that auto could lead the next phase of rally along with banks and engineering companies.
On the PSU banks, despite the recent run up, the Senior VP and Head – Capital Market Strategy at Sharekhan by BNP Paribas believes many PSU banks are still available at very reasonable valuation and leave scope for decent appreciation from here.
Hence, “we expect PSU banks to outperform in the coming quarters also,” says Gaurav with over 20 years of work experience covering equity research, asset management and investment strategy.
Do you think dollar–rupee volatility is the biggest concern for IT stocks? How should one approach the space now?
Rather the forex fluctuations, the rising interest rate and slowing economic growth in US & Europe is the biggest concerns weighing down the IT stocks since beginning of this year. We believe that bulk of the adjustment in valuations is behind us now and we have neutral view on the sector.
Most retail investors have reasonable high exposure to IT stocks. Thus, one can hold on to existing investment in IT stocks but we do not advise averaging at lower level. For new investors with minimal or nil exposure to IT sector, they can gradually increase exposure keeping investment horizon of 12-18 months.
Public sector banks have seen healthy outperformance. Do you expect the outperformance to continue in coming quarters too?
India’s banking system has seen a significant improved on asset quality side and the core business is improving with healthy growth in credit offtake now. Consequently, the beaten down public sector banks have seen buying interest lately.
Despite the recent run up, we believe many PSU banks are still available at very reasonable valuation ranging from 0.5-0.9x price/book value (PBV) and leaves scope for decent appreciation from here. Hence, we expect PSU banks to outperform in the coming quarters also.
Do you see significant entry opportunities in the cement space? Also do you expect more mergers and acquisitions in the segment?
Cement stocks tend to underperform in the monsoon season. Moreover, the Q2 results have been impacted by adverse effect of higher input cost and margin pressure.
However, we expect stocks to do better in coming months on the back of price hikes along with better quarterly results in H2 of the current fiscal. Also, the merger & acquisition (M&A) buzz could also result in re-rating of some mid-sized companies.
Is the auto and ancillary sector still a good buy?
Auto and auto ancillary stocks have seen a healthy rally in the past six months. However, the sector has underperformed Nifty by vast margin over the 3-year or 4-year period.
With new upcycle in auto sector, we believe auto & auto ancillary stocks have lot of catch up to do with benchmark indices. We believe that auto could lead the next phase of rally along with banks and engineering companies.
What are your thoughts on the metal space? Do you advise investors to buy these stocks?
Given the prevailing global uncertainties, we would avoid exposure to global commodities driven companies like metal and oil & gas stocks. Along with expected slowdown in US & Europe due to rate hikes, the demand environment in China also could remain weak due to strict zero tolerance covid policy. Thus, it would be better to be very selective in the metals sectors.
Do you think the private sector businesses are facing any kind of headwind now?
There is diversion in performance across sectors. We have seen a strong consumer spending this festive season in autos, textiles & fashion, leisure & hotels, durables among others.
Whereas there are signs of slower than expected offtake and margin pressure in commodity businesses like metal, cement, chemicals etc. Overall, the Q2 results have not seen any material downgrades in consensus earnings estimates of Nifty EPS for FY2023 & FY2024.
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