Daily Voice: Several smallcaps from automobile components, pharma, tier-2 defense returned to buy zone, says this investment advisor
Post Donald Trump’s win in US elections, Tier-2 defense companies are likely to remain unaffected due to their minimal US export exposure, said Sreeram Ramdas.
After the recent correction, “several smallcaps have returned to our buy zone, particularly in automobile components, pharmaceuticals, and tier-2 defense,” said Sreeram Ramdas, Vice President at Green Portfolio said in an interview to Moneycontrol.
According to the CFA Charterholder, tier-2 defense companies are likely to remain unaffected due to their minimal US export exposure. However, he is cautious with companies heavily dependent on US revenues.
After Donald Trump’s win in the US elections, he believes bilateral trade between India would do well going forward as Indian products would begin to substitute Chinese products.
With inflation easing and unemployment ticking up, it is highly likely that the Fed will reduce rates once again in the November policy meeting, said Sreeram who manages the family office division at Green Portfolio and is actively involved in fundamental research.
What does a Donald Trump win mean for emerging markets?
Emerging market currencies would likely weaken as the dollar strengthens. Given the proposed significant tax cuts under Trump’s presidency, we could see US treasury prices fall, yields rise, and consequently, a stronger dollar. Additionally, upcoming import duties will be challenging for China; Trump has pledged to impose a 60 percent duty on many Chinese products and a 20-25 percent duty on imports from other countries.
Are emerging markets out of the woods now?
Certainly not. Emerging markets like Mexico would face export challenges, with raised duties on auto components, steel, and machinery. For India, fiber optic cable exports to the US could be at risk. Trump has endorsed Starlink in recent rallies and podcasts, which could replace optical fiber cable projects valued in the billions. Notably, the US is India’s largest trade partner for optical fibre cable.
In terms of currency and foreign institutional investor flows, India and other emerging markets could see substantial outflows as US yields improve and corporate earnings outlooks strengthen locally.
Do you believe the market will complete its 10-11 percent correction from record highs? Is the correction in its final phase?
We may see a prolonged correction in largecap stocks, as Q2 results have been disappointing. Many banks and non-banking financial companies (NBFCs) are reporting asset quality deterioration, while FMCG and consumer discretionary companies’ results have also been underwhelming. In the IT sector, Tier 1 companies are struggling to navigate business challenges effectively.
Have you identified investment opportunities following the recent correction?
Yes, there are many. Several smallcaps have returned to our buy zone, particularly in automobile components, pharmaceuticals, and tier-2 defense. We expect our investee companies in these areas to achieve an average of 30 percent annual growth over the next four years, with strong profitability. We’ve also invested in a spice company projected to grow over 40 percent, driven by new product categories and an expanding distribution network. Careful consideration of valuations is crucial when investing in high-growth companies, and we’re ensuring our purchases are at highly reasonable prices.
Which sectors should we focus on if Donald Trump returns to power in the United States?
Tier-2 defense companies are likely to remain unaffected due to their minimal US export exposure. However, we are cautious with companies heavily dependent on US revenues. We believe bilateral trade between India would do well going forward as Indian products would begin to substitute Chinese products. Pharma, automobile components, and chemicals are areas we can see expansion in exports assuming that import duties, if any, levied on India do not prove detrimental.
Do you expect more than a 25-basis-point hike in the Fed funds rate at the November meeting?
Yes. With inflation easing and unemployment ticking up, it is highly likely that the Fed will reduce rates once again.
Bymoneycontrol
