Naveen Kulkarni of Axis Securities
“2023, while being slightly tough, could be a better year compared to 2022, where equity market returns were in the low single digits,” Naveen Kulkarni of Axis Securities PMS said in an interview to Moneycontrol.
He believes it is not the right time to accumulate IT stocks as these companies are slowing down in their key operating metrics.
Clarity on FY24 is yet to emerge. Hence, the time to start accumulating IT stocks will be after the Q4 results, he feels.
In Union Budget 2023, Kulkarni, who leads a team focused on building strong research and advisory functions across all customer segments and who has more than 15 years of experience in capital markets, says one of the important areas will be capital expenditure in an election-heavy year. Edited excerpts:
Should one start accumulating IT stocks as valuations are back to the long-term average? What would be the key focus area in IT quarterly earnings?
The short answer is no. IT companies are slowing down in their key operating metrics, but valuations for the sector are still one standard deviation above the long-term mean. Also, clarity on FY24 is yet to emerge. Thus, the time to start accumulating IT stocks will be after the Q4 results. This quarter is likely to be a mixed bag.
Do you expect steady tariff hikes in the telecom sector? Also, do you advise adding these stocks to the portfolio?
The telecom sector has strong revenue visibility and margin stability. Tariff hikes are non-linear but given a sufficient holding period, tariff hikes do materialise. Thus, telecom stocks are defensive and allocation bets in the portfolio which safeguard against potential downside risk and provide steady compounding returns.
Do you think 2023 is also going to be another tough year for the equity markets? If yes, is it the time to protect capital?
It is still early to comment on the whole year. However, we believe that earnings growth will be slower compared to 2022, which means challenges in 2023. However, many challenges are getting factored into the price. Thus, 2023, while being slightly tough, could be a better year compared to 2022, where equity market returns were in the low single digits.
Which is the one sector that is in a sweet spot now and why?
Banking is in a sweet spot with good credit growth and lower NPAs (non-performing assets). Thus, with some challenges that will appear in the second half of the year, banking will continue to remain in a sweet spot.
Do you expect significant upgrades in financials after the December quarter earnings?
Upgrades remain unlikely as significant upgrades have already taken place for the financial sector. We expect the earnings trajectory to be maintained for the sector.
Do you think valuations are attractive in life insurance companies?
Life insurance companies have reported good monthly numbers, and valuations are reasonable for the sector. Thus, insurance companies with strong earnings profiles and a relatively defensive nature make for a good allocation theme for the year.
What could be major announcements by the finance minister in the budget?
The important areas for the budget will be the focus on capital expenditure in an election-heavy calendar. Apart from this, the Union budget will be critical as we head into the 2024 Lok Sabha elections. Thus, welfare spending and government borrowing will be key focus areas. To put things in perspective, the government’s capex spending and borrowing calendar will be the critical areas to focus on.
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