Auto, retail, BFSI favorable investment bets in Samvat 2079: Vinay Paharia

The fair value growth of the Nifty is expected to be healthy in the long run, driven by a strong economic growth outlook, says Paharia

Despite the recent market correction, the benchmark Nifty50 index continues to enjoy a moderate premium to its current fair value. VINAY PAHARIA, chief investment officer at Union Asset Management tells Lovisha Darad, in an interview that consumer discretionaries, automobiles, and top financial lenders would drive Nifty EPS upgrade in the second quarter of FY23 (Q2FY23). Edited excerpts:

What's your reading of the markets since June 2022?

In response to the red-hot inflation, central banks across the world, led by the US Federal Reserve and the European Central Bank (ECB) have adopted a hawkish interest rate stance since the onset of this calendar year (CY22). This, in turn, has expanded the balance sheets of banks to raise interest rates in an aggressive manner, triggering a global risk-off trade. Since global investors consider equities a risky bet, the exodus of foreign capital from India prompted a sharp correction in 2022. That said, despite a strong correction in Indian equities, India Inc’s strong financial performance drove domestic markets higher against their global peers on a year-to-date (YTD) basis.

Currently, the Nifty trades at a moderate premium to its current fair value. While there is uncertainty in the near-to-medium term due to geo-political tensions and tighter monetary policy, equity valuations still trade at reasonable levels. Besides, the fair value growth of the Nifty is expected to be healthy in the long run, driven by a strong economic growth outlook.

What is your expectation from September 2022 quarter (Q2-FY23) results? Which sectors could drive Nifty EPS upgrade / downgrade?

We expect Q2-FY23 to witness sustained recovery as large corporations continue to operate at pre-Covid levels and growth will fare better than the previous quarter (Q1-FY23) on a three-year CAGR basis. Sectorally, consumer discretionary, automobiles, and top financial lenders with robust balance-sheets are expected to perform well in Q2-FY23. However, weakness will ensue in the information technology (IT) sector with muted growth outlook. Commodities-linked businesses like metals, cement, oil & gas, too, are expected to report subdued Q2FY23.

September auto wholesale numbers indicated a strong start to the festive season. Is this recovery sustainable? Is it time to look at the automobile sector?

Yes, the recovery in the automobile space is sustainable in the long run as the consumer cycle was weak before the pandemic hit. The upswing of latent demand, therefore, will materialise in the coming quarters and hence, remain 'over-weight' on the overall space.

Is there more steam left in telecom stocks after the launch of 5G services, or is the news already priced-in?

For telcos, a rise in average revenue per user (ARPU) will drive better asset turnover, higher profit margins, and churn modest return on equity. Other factors like the rollout of 5G services, and a benign competitive environment coupled with upbeat demand will also drive improvement in the long haul. Hence, we remain 'over-weight' on telecom.

What’s your advice for investors in the current market volatility? How should investors curate their portfolio for Samvat 2079?

From a macro-perspective, investors can capitalise on India’s strong relative position against peers and invest in equities with a long-term horizon. Autos, retail, and top financial lenders (BFSI) are favorable sectors for investment in Samvat 2079. Investors should stay away from ‘Greed’ (buying due to fear of missing out) and 'Fear' (selling in a panic) trading styles. Instead, they should systematically invest in equity markets for the long-term and ignore short-term gyrations in market prices.