Sahil Kapoor is the Head Products and Market Strategist at DSP Investment Managers
In an interview to Moneycontrol, Sahil Kapoor of DSP Mutual Fund said that the third quarter of FY23 is “likely to be flat with many firms still passing on the input price rise from earlier quarters. Over the next two quarters corporate margins may bottom out and see improvement which could support earnings.”
He believes there are some early signs of a rural recovery with rural wage growth improving. Hence, it is quite likely that rural India sees a better growth trend in the next few months as both harvests and prices have been favourable for the agricultural sector, said the market strategist and head of products with more than 14 years of wide-ranging experience across asset classes and businesses.
Do you expect overall better earnings growth in Q3FY23 compared to the previous quarter with easing input pressure?
Q3FY23 is likely to be flat with many firms still passing on the input price rise from earlier quarters. Over the next two quarters, corporate margins may bottom out and see improvement which could support earnings. Better margins and steadier earnings in FY24 are likely for sectors where input prices are now falling.
Are you betting on secular sectors that underperformed last year like pharma and IT?
Healthcare as a sector has a higher margin of safety and is probably at the trough in terms of business cycle and valuations. IT continues to undergo a consolidation after a stellar show post-Covid. It’s better to remain purely bottom-up in information tech and look for companies where margin pressures ease first.
Will the rural recovery be a strong theme? Are we at an early stage of rural recovery?
There are some early signs of a rural recovery with rural wage growth improving. Some rural-focused businesses from staples and discretionary sectors are also showing green shoots of recovery.
It is quite likely that rural India sees a better growth trend in the next few months as both harvests and prices have been favourable for the agriculture-dominant rural sector.
Most experts expect volatility to continue in the first half of 2023. Do you feel so, and will the second half be a healthy period for equity markets?
It’s difficult to guess volatility clusters based on short periods of time. But it does appear that there are fewer variables today to worry than we had six months ago. This means in the absence of a new unknown trigger, expect 2023 to be less volatile than the last year, on balance.
What are the two positive triggers for India in the year 2023?
Steady growth and its growth differentials versus the world. The tightening in monetary policy conditions in India has been shallower than the past. A decline in inflation will likely have a soothing impact on growth and financial markets. This aspect isn’t priced in fully and would work favourably for India.
Will public sector banks (PSBs) be a good bet?
PSBs have been looked at as a basket for far too long. A better way to look at PSBs is to be truly bottom-up. There are some great franchises within this space which have performed well over the years. We have been able to participate in two to three good PSBs over the years. We continue to remain attentive to these opportunities and expect them to remain open for the next few years.
According to you, which are the focus areas in the upcoming budget?
There are two key areas for Budget 2023. First is the overall expenditure that the government will account for. We had a few steady years of government expenditure which was financed by fiscal deficit. Since a fiscal impulse is likely to be absent, it would be important to see how much growth would the government pencil in. The other is any changes to direct taxes which are one of the quickest way to impact the economy.
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