Anand Tandon on sectors to look at in present risk-return scene

Capital goods companies are positioned for strong revenue growth in the September quarter

The Indian manufacturing sector is expected to witness significant growth in the upcoming years due to the government's focus on the sector, according to Arvind Kothari, the Founder of Niveshaay. Kothari expects renewable energy, recycling, and electronics manufacturing to emerge as promising potential wealth creators for the decade. In contrast, companies with poor cash flow and low visibility in earning growth could underperform in FY24, despite a strong earnings recovery season in Q4 anticipated.

India's time has come and sees the country's economic growth as a starting point, with most companies positively surprising on earnings despite cost pressures. However, there are three headwinds: crude oil's rising prices, commodity costs pressure, and the effect of rate increases by the US Federal Reserve and RBI.

Despite concerns about global slowdown and earnings growth risks, the information technology (IT) sector has contributed significantly to the benchmark Nifty 50's gains in the last six months. IT stocks have outperformed banks and helped the index surpass the 20,000-mark. Eight out of ten constituents of the Nifty IT index have delivered double-digit returns. The gains have been driven by short covering and fresh bullish positions. The sustainability of this momentum will depend on the September quarter results and guidance for the second half of FY24.

After remaining net sellers from April to June, FIIs have poured in Rs 7,101 crore from July till September 15, at a time when management commentary and guidance from IT majors painted a stark picture for the sector, show NSDL data.

“The next couple of years should be better for pharma companies as the pricing outlook keeps on improving and the cost pressure is moderating as well for inputs like APIs, chemicals, etc. So, generic companies or those with a good specialty portfolio, should do well in the next few years.”

Carnelian Capital Compounder Fund aims to invest in a concentrated portfolio of 25 long-only stocks within its QARP framework, focusing on capturing the trillion-dollar Indian market opportunity. In response to macro headwinds and geopolitical issues, all flagship schemes have reportedly delivered decent outperformance versus its benchmarks. The portfolio is reportedly evaluated within two broad baskets--Magic (50%-60%) and Compounder (30%-40%)--to identify companies with visible change and a blend of sustainable earnings growth.

When a sector gets discovered we see a sudden rush of money getting into that sector. The reason is that the earnings of the companies in that sector are likely to grow faster and it makes sense to pay more for a stock whose earnings grow at a faster rate. Now, how much more should be paid is the question. One of the ways is to determine by dividing a company’s PE multiple by its growth ratio. Look carefully at the PEG ratio which in the long-term indicates many things in a better manner than most other alternatives like PE which tend to create a mirage of value. By focusing on the PEG ratio, investors can better differentiate between genuinely valuable growth opportunities and those stocks that appear cheap but are cheap for a reason.

Reliance had been in the Rs 2,200-2,700 band for quite some time. It has come closer to the lower end of the band and there are definitely positive triggers which will come later – maybe listing of Jio or the retail arm getting demerged into a different company. All those triggers will come eventually. So valuation-wise, after the correction, it looks more attractive.

Elixir Equities Director, Dipan Mehta, argues that new age companies such as Zomato, Policy Bazaar, Nykaa, and Paytm are stocks of the decade of the 2030s and could be huge multibaggers over the next 5-10 years. However, these companies are still in their investment phase, which reflects in their P&L, although they are making strong efforts to get into EBITDA positive. Regarding concerns about Page's decline, Mehta suggests that a demand slump due to higher inflation and uncertainty around weather patterns may have impacted Page industries.