'Market has factored in BJP's victory'

'The trajectory of headline indices will be determined by the number of seats the BJP would win.'

Mid-and small-cap indices surged over 40 per cent in 2023.

Achin Goel, vice-president, Bonanza Portfolio tells Rex Cano/Business Standard in an e-mail interview that there are pockets in these two market segments where the valuations have run ahead of their fundamentals, and there can be a time-wise correction.

How long will the markets remain in consolidation mode? What key triggers can make them breakout on either side?

Headline indices in India have exhibited a consolidation phase since the beginning of 2024, registering a modest increase of only 1.8 per cent.

This muted performance can be primarily attributed to the consistent and significant net outflows by foreign institutional investors.

That said, the market has already factored in the Bharatiya Janata Party's return to power; however, the margin of victory for the BJP remains an unknown variable.

The trajectory of headline indices will be determined by the number of seats the BJP would win until the election results are announced.

Do you expect more correction in mid-and small caps after a sharp run in CY23?

The euphoria for similar returns in these two segments in 2024 is unreasonable.

There are pockets in the mid and small-cap space where the valuations are ahead of their fundamentals, and we can observe a time-wise correction wherein the stock prices consolidate at higher levels allowing the earnings to catch up.

However, investors are advised to continue allocating a part of their investment portfolio towards these segments as the largest opportunities for long-term wealth creation lie therein.

What's your view on stocks of public sector undertakings (PSUs)?

While the fundamentals of PSUs remain optimistic, current valuations offer limited upside potential for new entrants.

One key factor for PSU stock investors should keep a vigilant eye on is the government's divestment programme.

Having seen the value of PSE's skyrocket it presents the government with an opportunity to cash-in and fund the fiscal deficit.

So, one should not worry as a long term investor but in near term there can be possibility of some correction.

Private versus PSU banks. Which way are you tilting now?

Large-cap private banks have underperformed significantly in 2023 due to higher borrowing costs resulting from elevated policy rates.

This led to their lagging performance compared to their PSU counterparts.

However, as the interest rate cycle potentially reverses, private banks are anticipated to experience a marked improvement in their financial performance.

IMAGE: Achin Goel.
Photograph: Kind courtesy, Achin Goel/Linkedin

How do you see corporate earnings play out in the next fiscal?

We anticipate an earnings per share growth of 10 to 12 per cent over FY25, with potential recoveries in the metals and private banking sectors.

Pharmaceutical, infrastructure, renewable energy and consumer durable companies are expected to maintain their earnings momentum where we are overweight.

Valuations in the banking and financial services sector , especially for private sector banks, appear attractive.

Additionally, the government's focus on infrastructure development is likely to benefit infrastructure and allied companies by increasing their order book visibility.

While mining companies like GMDC and NMDC experienced a surge in profitability, metal stocks faced pressure due to declining international prices.

The consumption segment, particularly in rural areas, is expected to witness an uptick in the pre-election period. This trend could lead to a short-term boost for rural-focused companies.

Are there any sectors that can be the dark horses of 2024?

From a tactical standpoint, large-cap private banks are available at inexpensive valuations and therefore are a relatively safe avenue for investment in CY24.

IT firms saw a sharp correction in CY23 as fear of recession and rising interest rates forced many global IT companies to curb IT spending.

As the economic outlook and interest rate are turning to favour the IT companies, we believe investors can benefit by incrementally allocating higher funds to make good of this opportunity.

By when do you expect the global central banks to start cutting rates?

With the US Presidential election to be held later in the year and the Fed remaining committed to fostering economic growth, the narrative of higher for longer is unlikely to materialise.

The path chosen by the FOMC for unwinding interest rates will have a significant impact on global markets.

The sole caveat to this perspective lies in the resolution or de-escalation of the conflicts and crises plaguing West Asia.

Any negative development in this region could lead to a substantial and sharp rise in crude oil prices, consequently contributing to global inflation.

In such a scenario, while the strong fundamentals of the Indian economy could mitigate the impact, a downturn in the Indian market is still a possibility.

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Feature Presentation: Rajesh Alva/Rediff.com