IT sector would be a good defensive bet in the portfolio, but the valuation appears fair post the recent rally, Shridatta Bandwaldar, Head of Equity, Canara Robeco, said in an interview with Moneycontrols Kshitij Anand.
Q) July has been an impressive month for investors with both Sensex, and Nifty climbing above crucial resistance levels. We saw mild profit booking towards the close of the month, but would momentum change in August?
A) Predicting near term returns is almost impossible. At the current junction, the focus is more on accessing pace of underlying demand recovery as the economy opens more and moreovernext quarter or two from the lockdown and its implication for earnings of different sectors and companies.
Having said that, from the valuation perspective we are trading at 18xFY22, which to us looks fair and thus we see limited upside in the near term at indices levels.
But, the sectoral rotation and outperformance will continue as investors get incremental sector and company-specific data points.
Q) We have seen some massive outperformance from the IT pack. What is fuelling the rally, and what should investors do now?
A) Recent IT rally has been driven by, 1) better-than-expected quarterly numbers and guidance from most companies, 2) IT is levered to developed countries, which are expected to witness earlier demand recovery driven by huge fiscal push, 3) WFH trend at the margin will increase the need for IT spend from the customers and 4) Offshoring trend might increase as clients focus on costs in this environment.
Looking ahead, the sector would be good defensives bet in the portfolio but the valuation appears fair post the recent rally.
Q) Are there any stocks/sectors that investors could include in their portfolio to safeguard from volatility?
A) We remain invested in Healthcare, IT, select FMCG and exporters to protect portfolio from meaningful downside volatility.
Q) 2020 gave an opportunity for investors to build their portfolio at a reasonable price. What factors should one consider for value investing?
A) We are happy to see Indian retail investors participating in the market when it was at an attractive valuation. However, given the lack of research at retail investors' end, we will advise them to use a mutual fund route rather than investing directly in securities. Investing directly in securities needs a lot of in-depth research over the period.
Q) We are also heading towards the Independence Day as well. Sticking to the theme, how can investors attain financial freedom especially at the time when there is a lot of uncertainty, and equity markets have rallied without any meaningful change in fundamentals?
A) Achieving financial freedom through investing in equities needs a huge amount of discipline. Equities as an asset class will always outperform other asset classes over a period.
Investor has to remain focused on the medium to long term goals and has to continue with a pre-decided sum of SIP plan through 5, 10, 15 years to achieve that financial freedom.
There will always be some or the other uncertainty in markets, which will make investors nervous the key is to not extrapolate near term challenges for a longer horizon.
Q) What is your view on the recent results which have come out from India Inc. for the June quarter? They have not been as bad or the commentary from the management seems comforting. Or, was the Street discounting the worst before?
A) Quarterly earnings have generally been better than what the consensus was building in. This is also partly the reason, why you witnessed arally in several sectors and companies post results.
Most sectors have displayed good cost mitigation ability during when revenues were down between 15-70 percent. The next few quarters would give better indication on-demand recovery.
Q) People say that history never repeats but rhymes. Leaders of the past might not lead the future. So which according to you could lead the rally on D-Street?
A) It is almost impossible to predict that today. Having said that, consolidation of market shares would be a big theme and we would keenly watch it to identify the next winner sector and companies.
Q) PM Modis assurance to the financial sectors was a positive sign. What is your call on the financials? Do you think that investors could contra bet on this sector as the worst seems to be factored in?
A) If COVID gets resolved faster than anticipated on timeline, financials and discretionary might surprise positively. These are also the sectors with the highest uncertainty and low investor expectations for FY21/22. Financials as a sector will also witness huge consolidation on the asset side over the next 3-5 years.
Q) What are you factoring in from the RBI for the rest of the year? More easing?
A) We think RBI has done pretty well in terms of providing rate cuts and liquidity to the market in this challenging time. We do expect some more easing this year.
Q) Maruti Suzuki posted loss for the first time since IPO. What is your call on the auto space? Which sectors according to you can turn out to be a dark horse?
A) The auto sector has been witnessing a weak volume trajectory over the last 6-8 quarters, driven by slowing economic activity and retail consumption. We see the auto sector reviving at the margin in 2HFY21/FY22, driven by better rural demand and increased private transportation needs due to COVID.
Sector, where the investor expectations are really low, can prove to be a dark horse over the next 1 year. These sectors could be one or more from Auto, Financials, Discretionary consumption, Cement, etc.
See the rest here:
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