'Private banks are well-placed to deliver good performance over the next six months.'
As markets trade near all-time high levels, Naveen Kulkarni, chief investment officer at Axis Securities, tells Nikita Vashisht that 'Quality' as an investment theme is set to outperform 'Value' going ahead.
Do you see more legs to the market rally?
The market has seen strong earnings momentum and almost all the sectors are reporting strong earnings trends.
June quarter saw further earnings upgrades, notwithstanding the impact of a severe second wave of COVID-19.
It also seems likely that earnings momentum will sustain in Q2-FY22.
Thus, while the market could seem a little expensive optically, a strong earnings trend will mean that the market rally is more likely to sustain than come to a grinding halt.
Besides valuations, what has made foreign portfolio investors cautious on India?
FPIs are impacted by a multitude of factors that include the rising cases of delta variant, global inflation and the Federal Reserve's commentary.
As sentiments change on these factors, the view of FPIs also change.
At present, the concern of the delta variant has risen and inflation challenges continue.
What has your investment strategy been over the past few months?
We have focused on 'Quality' as a theme for sustenance of the healthy returns generated over the last one year.
Over the last 12 months, the two dominant market strategies have been 'Value' and 'Quality'.
While 'Value' has outperformed the other themes of growth and momentum by a significant margin, the outperformance versus Quality has reduced significantly.
What is your view on the telecom sector after the government's relief measures? Are the steps enough?
The reforms in the telecom sector are long-term and structural in nature.
They will help the sector in addressing the cash-flow issues in the short-term and also provide better visibility to build long-term business plans.
The measures announced are positive for Vodafone Idea, as the four-year moratorium provides enough time to manage its balance sheet and improve business fundamentals.
The reforms are also positive for the tower companies as there will be better visibility of tenancy.
Overall, this is a positive step for the industry in addressing some of the challenges, but pricing concerns will continue to persist for the sector.
Your overweight and underweight sectors?
Our key overweight sectors are information technology, metals, private banks and telecom.
We have been underweight on autos and pharmaceuticals.
The automobile sector has suffered because of a global shortage of chips and rising commodity prices, whereas the pharmaceutical sector has been a mixed bag with domestic focused plays doing better than export plays in the recent months.
However, pharma is more of a bottom up sector with significant opportunities in niche categories.
Which sectors and stocks can lead the next leg of the market rally?
As the economy picks up, credit offtake will also rise and growth will be back.
As the growth rate picks up, the challenges of non-performing assets start subsiding.
Private banks are well-placed to deliver good performance over the next six months.
There is a wide range of choice in consumer stocks.
Consumer discretionary are well placed to deliver good returns.
The opening up of the economy is a big theme in consumer discretionary space.
There is significant pent up demand in hospitality, office wear and other discretionary categories.
Our top picks in consumer stocks are Aditya Birla Fashion, Varun Beverages, Asian Paints and Hindustan Unilever Limited
Feature Presentation: Rajesh Alva/Rediff.com