Stock of IT companies are trading at a discount after the recent sell-off, and concerns over attrition is receding, while auto ancillary companies have witnessed robust growth after a long period of lull, says Vaibhav Agarwal, fund manager – PMS & AIF, at the asset management firm.
“The QSR and consumer staples look expensive at the moment because valuation concerns persist amid the higher operating expenses, cautious demand environment and store expansion not providing revenue potential for the next few months,” Agarwal told in an interview to ETMarkets. Edited excerpts:
What kind of bottom-up opportunities are you seeing after the 12-18 months of correction in equities?
We have remained bullish on the India theme, but at the same time, we had some hiccups on the global fronts because of the Russia-Ukraine war, inflation, interest rate hike cycle among others. Having said that, India has outperformed a lot and things are now getting repaired globally.
If we look at the internals of the market, Nifty is just 3-4% away from 52-week high levels. In terms of fresh allocation, we are seeing opportunities in financials, IT services, technology and manufacturing sectors across large caps and even in mid and small cap stocks where companies are sector leaders.
Which PMS funds do you directly oversee and what’s the total AUM? I oversee various PMS and AIF funds with a total AUM of around Rs 4,000 crore. After the recent correction, valuations have turned in the broader market segments. Which sectors would you like to invest in the midcap and smallcap categories?
The market rally has broadened and so has the FII buying, and that’s visible in the numbers as well. Historically, data suggests that whenever FII buying is back, we see a lot of momentum in the broader markets.
Why we say this is because FII buying gets compensated by mutual fund selling and those mutual fund guys then shift from large caps funds to mid and small cap funds. Hence, that is the reason we are seeing broader markets outperforming when the FII money turns back.
In terms of investing in broader markets, financials, IT, tech and manufacturing sectors look interesting. There are also certain interesting opportunities that we are clearly seeing in the sector agnostic play because each one of them is performing and ready to take off and, hence, stock picking is something which will play an important role.
New-age technology stocks seem to be gaining momentum. What’s your take and would you look into some of the names?
Yes, some of these businesses have focused on profitability and are showing a clear trajectory towards the same. The same is getting reflected in their quarterly numbers as well as the companies have started to report decline in losses and are on the way towards profitability. The payments space and food delivery space are seeing some consolidation and the existing incumbents should benefit from the same.
Also, companies in the payments segment are gaining traction in terms of market share and have already eliminated smaller players. Similarly, in the food delivery business, we see only two major players with significant market share while others have become limited to either grocery or other logistical services.
Which sectors did you enter/exit in the last 3 months?
Technology and auto ancillaries are sectors where we have increased weightage. All large IT companies are trading at a discount after the recent sell-off in the sector.
Most of them have started showing signs of attrition rates cooling off this quarter, and we expect it to come down in the next couple of quarters.
The second area of interest is auto and auto ancillaries as FY23 has been a year of rebound and robust growth for the sector after the lull that we saw in the last many years.
The rural demand is coming back and that is clearly visible in the volume growth. With companies now having ongoing R&D, incremental capex, it will only increase the wallet share and, hence, it is time to remain overweight on the sector.
On the other hand, the QSR and consumer staples look expensive at the moment because valuation concerns persist amid the higher operating expenses, cautious demand environment and store expansion not providing revenue potential for the next few months.
Talking about the AIF industry, what kind of growth do you see in the next 5-10 years?
AIFs are a great investing vehicle for HNIs. It gives a pooled MF kind of vehicle for HNIs, thereby giving more agility in thematic investing. The next 5-10 years could see the rise of boutique thematic AIFs.
Which category within AIFs is gaining a lot of attention and why?
CAT-2 AIFs are getting attention because they allow investors to invest in debt and unlisted equities.
In which sectors are you seeing investment opportunities for HNIs, particularly those who are looking for diversification?
Investors should always have a diversified portfolio and it’s often said that don’t put all your eggs in one basket. Regarding investment opportunities, we remain positive on financials, IT services, technology and manufacturing sectors across large caps and even in mid and small cap stocks where companies are sector leaders.
Companies within these sectors have shown resilient return ratios and growth which is visible in their March quarter earnings and with reasonable valuations now, it makes it even more interesting to allocate funds.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)