“Earnings outlook for industrial companies remains buoyant. But, unlike PSU banks, valuations here are more rich. Thus, it’s possible that these companies consolidate in the near term,” Niket Shah of Motilal Oswal AMC says in an interview to Moneycontrol.
On the PSU banks, which are coming off from a decade of distress, the Senior Group Vice President – Fund Manager with over 14 years of experience in equity research and portfolio management says there is still some runway left in these names before valuation concerns start emerging.
“In 2022, it was the liquidity tightening that hurt sentiments and weighed on markets. In 2023, it could be growth slowdown that could weigh on sentiments,” says Niket Shah, who currently manages Flexi Cap fund and Midcap Fund at Motilal Oswal AMC.
Do you think the equity market looks confident enough about an expected slowdown in aggression in terms of rate hikes by the Federal Reserve especially after the recent FOMC minutes?
Yes, equity markets are certainly pricing moderation in the Fed rate hikes. Also, with growth moderating and inflation easing, some moderation in pace of rate hikes is certainly warranted.
What are the possible negative factors that can spoil the equity market mood in the coming calendar year?
In 2022, it was the liquidity tightening that hurt sentiments and weighed on markets. In 2023, it could be growth slowdown that could weigh on sentiments.
Are you confident about PSU banks now after cleaning of balance sheets? Also are these stocks looking overvalued after a rally in the recent past?
PSU banks are coming off from a decade of distress. Even after the rally, most of them barring SBI are trading below book. Given that asset quality cycle is behind, margins are looking up and growth reviving these banks are the biggest beneficiaries of the improved growth scenario. Hence to that extent, there is still some runway left in these names before valuation concerns start emerging.
How do you see industrial companies as they, barring power generation and T&D, reported healthy earnings in Q2FY23?
Yes, industrial companies too are seeing improved growth prospects after a decade of capex lull. Environmental clearances are at multi-year highs. Manufacturing is the biggest theme which should play out given make in India initiative by honorable prime minister.
Hence, for these companies as well, the earnings outlook remains buoyant. However, unlike PSU banks, valuations here are richer. Thus, it’s possible that these companies consolidate in the near term, but from a medium term perspective, it should deliver good returns.
What is your take on the real estate sector? Is it really a better buy or better to prefer other sectors?
Real estate stocks have been badly bruised in 2022, despite demand being strong as liquidity tightened. With liquidity tightening peaking out, it’s worth looking at the sector. However, in the near term there could be a moderation in demand which can result in better entry point for the stocks.
Do you expect the economic growth numbers for FY23 to be above the RBI forecast?
I don’t think so. While domestic sectors are certainly surprising on the upside, the headwinds from the external sector have only increased. Hence, to that extent RBI’s GDP forecast should be largely maintained.
What is your strategy for the Midcap and the Flexicap funds that you manage?
We have been following our philosophy of QGLP, which is buying high Quality companies with high Growth and Longetivity at reasonable Prices. Our strategy has been always to identify businesses where size of opportunity is very large, growth of the industry is very strong , management quality should be par excellence and ability of the management to reinvest the free cash flows back to into the business to further scale up. This has helped us to identify multiple multibaggars over period of time which has benefitted the fund.
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