Sameer Kaul of TrustPlutus Wealth
Sameer Kaul of TrustPlutus Wealth is of the opinion that the market pressure points of 2022 will not be at play in 2023 as they show signs of reversal for the better.
But participants would do well to keep an eye on the rate of growth of major economies as financial institutions have been cutting their next year GDP forecasts at regular intervals, says he.
An avid reader, Kaul has an experience of more than 27 years and leads the wealth management practice for Trust Group.
He thinks state-owned banks are an attractive play, as they have strengthened their balance sheet by providing for stressed accounts but Investors should stick to the stronger PSU banks, Kaul says in an interview to Moneycontrol. Edited excerpts:
Are you confident enough about PSU banks now they have cleaned their balance sheets? Are these stocks overvalued after the recent rally?
PSBs (public sector banks) are an attractive play on the growing Indian economy, as these banks now have strengthened their balance sheet by providing for stressed accounts.
Focus on improving underwriting practices has manifested in controlled slippages. FY22/1HFY23 results indicate business strength, healthy PCR (provision coverage ratio), strong liability franchise, improving core operating profitability and better asset quality matrix.
The banking space has rallied for the last few months. The PSU banks have in fact given the best returns. Cleaning up their balance sheets and improving corporate earnings is what has definitely helped in bringing about this change—PSBs delivered a good set of Q2 results—a sign of improvement at these banks. Loan growth was robust.
However, with rising interest rates and deposits not increasing in sync, there is a possibility of loans becoming more expensive with lower NIM (net interest margin) growth going forward.
PSBs will need to keep a close watch on their asset quality going ahead. Rising interest rates will continue to help Indian banks, after high credit growth and stronger margins helped propel earnings. We would advise investors to stick with the stronger PSBs.
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What is your take on the real estate sector? Is it a good buy or are other sectors better?
Despite seasonality, the top 12 listed companies witnessed an 8 percent QoQ and a 29 percent YoY growth in pre-sales. In volume terms, these companies cumulatively reported only 3 percent YoY growth. While the revenue mix has played its part, it is clearly evident that the industry has taken sufficient price hikes to offset the input cost inflation.
In a rising interest rate scenario, sentimental impact on the sector in the near term is quite a possibility, with high construction costs and cost of capital and constrained industry growth, we believe larger developers will continue consolidating their market share.
We continue to prefer players with an ability to generate robust cash flow over the next three-to-four years and invest in developing their pipeline, which will provide further growth visibility and could lead to a re-rating.
We continue to play the real estate sector through ancillary sectors, which are direct beneficiaries of the uptrend being witnessed in the real estate sector.
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Do you think the equity market is looking confident about the expected slowing of the aggressive pace on rate hikes by the US Federal Reserve?
Post hitting a low in September 2022, US markets have staged a smart recovery (+12 percent) basis the likelihood of the US Fed going ahead with smaller rate hikes.
The real question market participants are trying to get a grip on is how far policymakers might have to go next year to make satisfactory progress against inflation. The jury is out on this one.
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What are the possible negative factors that can spoil the market mood in 2023?
The factors which played spoilsport in CY22 are unlikely to cause similar damage in CY23, as most of these pain points are now seeing a reversal for the better.
The main uncertainty globally seems to be the rate of economic growth in the major economies in CY23, considering the fact that financial institutions have been cutting their next year GDP growth forecasts at regular intervals. The markets could see calmer waters once the growth prospects over the next 12 months start getting clearer.
Are you bullish on industrial companies as they, barring power generation and T&D, reported healthy earnings in Q2FY23?
As regards industrials, export-oriented companies fared well in Q2 FY23. On the domestic front, consumable and component suppliers continued their decent performance. Order inflows continue to remain healthy. Looking ahead, as inflation concerns ease, we believe industrials could continue to report healthy growth numbers on the bottom line.
Do you expect the growth numbers for FY23 to be above the RBI forecast?
The current estimates of RBI pencil in around 7 percent growth in GDP in FY23. The government has recently expressed its apprehension about achieving this number. While India could fare well relative to other large economies, it cannot remain an island unto itself.
Over the medium term, markets will evaluate the extent to which growth sustains while trying to reign in inflationary pressures and managing the deficits.
On the other hand, India can benefit from a recession-led fall in commodity prices. Achieving the RBI growth estimate for FY23 could be seen as a better-than-expected outcome, given the current uncertainties.
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