Daily Voice: ITI MF’s Rajesh Bhatia identifies 3 sectors that are attractive, constructive for next 3 years
Rajesh Bhatia of ITI Mutual Fund is optimistic about the Indian economy being in a structural upcycle, which he expects to become more evident as global macroeconomic challenges ease over the next few quarters.
According to Rajesh Bhatia of ITI Mutual Fund, all the three businesses – auto, pharma and IT – are very attractive. So he is favourably inclined to each of these businesses, he said.
He is optimistic about the Indian economy being in a structural upcycle, which he expects to become more evident as global macroeconomic challenges ease over the next few quarters. Four factors including excellent corporate and bank balance sheets, and resilient consumer spending, support his constructive view on Indian equities over a three-year horizon.
“We believe India is currently in a business, credit, and earnings growth cycle that will extend from FY24 to FY27, signalling a robust medium-term earnings outlook,” said the Chief Investment Officer of ITI Mutual Fund who has more than 30 years of investment experience in Indian equities and over 10 years in the field of alternative investments (long-short fund management). He was a Co-founder & CIO in Heritage India Advisors.
Is it better to buy stock after listing rather than at the time of the IPO?
This is a case by case decision. There is no generic answer to this. Usually though in bull markets one should be aware that the promoters (who know their business best) are offloading their equity and have a good understanding of the value of their businesses. Broadly, however, we are fortunate to be investing in India, which is the fastest growing economy in the world, with an average Return on Equity of businesses of 16-18 percent (which means a collection of highly profitable businesses). Not surprising then, we have several companies generating wealth for investors.
Are you still cautious about the equity markets even after a more than 5 percent correction from record highs?
We are optimistic about the Indian economy being in a structural upcycle, which we expect to become more evident as global macroeconomic challenges ease over the next few quarters. Our confidence in this domestic economic growth phase is based on several key factors:
1) Corporate and bank balance sheets are in excellent shape, positioning them to drive capital expenditure and credit growth effectively.
2) Consumer spending remains resilient, supported by strong demographics.
3) The government continues to prioritize growth through direct investments and reforms such as GST (boosting the tax-to-GDP ratio), lower corporate taxes, improved ease of doing business (attracting private investment), and initiatives like the PLI schemes (which incentivize private capital for import substitution and export-oriented industries).
4) India is expected to benefit significantly from global supply chain realignments driven by geopolitical factors.
These drivers make us constructive on Indian equities over a three-year horizon. We believe India is currently in a business, credit, and earnings growth cycle that will extend from FY24 to FY27, signalling a robust medium-term earnings outlook.
Do you expect more weakness in small and mid-caps compared to large caps?
In September, the Nifty 50 index saw a correction of approximately 0.88 percent, while the midcap and smallcap indices declined by 1.09 percent and 1.58 percent, respectively. These corrections are primarily driven by market uncertainty and a broader sell-off. For mid and small caps, we remain cautiously optimistic in the near term, with a focus on selective stock picking. The upcoming earnings season is likely to be a key market driver, particularly for mid and small-cap stocks. Companies with strong earnings visibility are expected to benefit the most. Given the higher volatility of mid and small caps, we maintain a cautiously optimistic outlook in the near term, with an emphasis on selective stock picking.
Are you overweight in the auto and auto ancillary, pharma, and IT sectors?
All the three businesses are very attractive and have several well-managed businesses with a long duration of growth. So we are favorably inclined to each of these businesses.
Do you expect any serious downgrades in earnings for the September 2024 quarter?
The September quarter is expected to be subdued, with economic indicators like GST growth, auto sales, and cement sales signaling a potential slowdown. However, we believe this is a temporary effect, largely due to factors such as the general elections and the heatwave. We view this slowdown as short-term and are particularly keen to hear management commentaries on future business outlooks during the quarterly results.
After reading the RBI monetary policy note and commentary, do you think there is still no guarantee of an interest rate cut in December?
With inflation currently within the RBI’s target range, a rate cut in the repo rate can be expected going forward. The GDP growth projection for FY 2024-25 has been maintained. However, in the short term, there may be upward pressure on crude oil prices due to the ongoing tensions between Israel and Iran, which could also impact the outlook.
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