As the corporate earnings season for the December quarter (Q3) FY24 has hit the Indian stock market and expectations have begun to stir up, the market's bullish momentum will be determined based on its performance. So far the IT firms have kicked off the season defying the existing caution of sluggish growth rate among the investors.
While sharing her views on the corporate earnings in various sectors and the stock market developments, Sonam Srivastava, Founder and Fund Manager, Wright Research in an exclusive interview with BW Businessworld said, "Expectations are strong, but the numbers are not and markets work on expectations."
As the corporate earnings season has arrived with blue chips such as Infosys and TCS reporting above expectations results. Can we expect that the IT sector is going to boom throughout the corporate earning season?
I think the numbers have not been that good but the commentary is improving a little bit. People are expecting that somewhere in the next quarter the deal will start improving significantly and the IT sector might get into flavour. Expectations are strong, but the numbers are not that strong and markets work on expectations.
Why did HDFC AMC fall despite good momentum post-earnings? What are the reasons for such moments in the stock market irrespective of the results? As a retail investor, is this the right time to buy such stocks, while anticipating the corporate earnings?
In the stock markets, people buy the expectations and they sell the news. So they expected the HDFC AMC to do well even before the earnings. That is why the buying was happening and once the news was out then some people might have booked profit after achieving their target price.
The market has major positives going on right now and there are hardly any dark clouds. There is an expectation of rate cuts, very strong growth that the economy is seeing, an expectation of a stable government and the continuation of policies as well. The valuations are a little bit high but that is ignored when a Broadway buy is happening. So it is a good time to buy.
The IT is at low and nowhere highly valued which makes it very interesting as a value play and from a consumption perspective, it is also a very stable sector. So it doesn't hurt to buy into that space as well.
Can we assume all the negativity which was associated with IT stocks has been gone?
Things are looking more positive and the numbers that have come out are not attractive, in any sense, but if one looks at the commentary, people are talking about recovery happening in the US and Australian markets. Europe has not recovered that much but the US market is definitely giving positive signs. So, the deal wins in the banking space in the US might start happening starting next quarter.
If we have to be bullish about any particular sector for this corporate earnings, what would it be?
The banking sector would do well, similarly, housing finance and financial companies would be good picks because the numbers will again be robust. People were expecting the net interest margins (NIM) to ease which might not be the case. Credit growth is very strong, so that will be one big push and the growth momentum will continue. Along with it, the pharma sector is looking interesting due to domestic growth. Investing in housing finance would also be interesting.
We might see good numbers coming out of metal and energy, but the prospects are not extremely strong out for them. So that would not be my main pick. Also, auto will give you very decent numbers and maybe the two-wheelers segment will perform well after the auto earnings. Chemicals will not probably see a very big growth, energy has done decently well. Along with it metals will show good numbers.
Additionally, blue chip banks have been subdued but the broader trend for the banking sector itself is quite strong with healthy credit growth. So the banking sector as a whole might get attention. It is undervalued right now in the large-cap space, so as foreign institutional investors (FII) money comes in, the large-cap banks could be interested.
The third quarter right was more focused on fast moving electronic goods (FMEG) and hospitality stocks due to the cricket World Cup and festive season, do you think this quarter would justify those expectations?
The festive season has also been slightly below expectations. But this quarter will see a decent number coming out of the consumer. If the government initiates something in the interim budget that would be one big positive. Otherwise, we expect the numbers to sort of be in line with expectations and exuberant growth coming.
Amid the sluggish rural demand, will this quarter going to be different for the fast moving consumer goods (FMCG) sector?
The rural demand hasn't picked up for a while. We expect it to pick up every time but it doesn't pick up. But this time as the elections are here, the government might incentivise the rural economy. However, the government might decline this expectation and focus only on infrastructure.
FMCG valuations have also picked up like other sectors. There is a growth expectation from the FMCG sector but not extremely high. We could be selective in picking stocks from that segment, Some of the mid-cap stocks and some QSR restaurants like Devyani or Varun beverages have a very strong potential for growth. Otherwise, we expect a muted performance from this sector until and unless something is declared by the government.
Can we expect the perpetuation of the bullish sentiments in the realty space as well despite a strong rally?
The real estate has been extremely interesting. Some of these stocks have a lot of potential like Sobha or Suntech. They have a very consistent growth trajectory and they have released videos of the new locations, which will add to that. If this bull market continues, real estate is going to be a very good pick along with it housing finance who are funding these projects might also see a lot of growth. So real estate continues to be a good growth pick, but obviously, it is highly volatile also where real estate might be prime for sharper corrections.
