Exports: Textiles, pharmaceuticals and IT as focus areas
Asked about the potential value in the export sector amid ongoing trade uncertainty, Bhandarkar highlighted the importance of careful selection.
“I would just say that you have to be very selective because we’re seeing companies face challenges and when they face challenges, they look for solutions and one of the things we’ve seen especially with textiles is that a lot of companies are trying to broaden their market. If they’re dependent on a particular geography, they’re trying to broaden their base and the other way around they’re trying to move across that geography.”
He also cited pharmaceuticals and IT as sectors positioned to benefit from current trends. “There are some areas like pharmaceuticals where we have some core capability and I think that also benefits from whatever is happening now. And going back to your earlier question, the IT companies themselves will evolve. Look, they are very well-run companies with strong cash flows. At the end of the day whatever the client needs will be more essential today with AIuc. AI-based solutions and they will be customized for each organization or for each use so, there is a play. Yes, it is a challenge for a short-term investor, but I believe things will turn out better.
Financial: Credit growth and choice opportunities
On financials, Bhandarkar noted that credit growth is beginning to pick up, providing a strong growth runway especially for private sector banks. “We have also seen regulatory over-forbearance on unsecured lending, etc., which has now softened. So, to that extent the growth runway for private banks is very strong,” he observed.
He also pointed out the opportunities in PSU banks, particularly with the potential return of private sector capital. “It also puts PSU banks in a very strong position. I think what needs to be recognized here is that asset quality as a sector has been pristine, with a few exceptions here and there. And what we’re starting to see now is that the segments that are generally very volatile and most affected by economic downturns, etc., seem to be microfinance or small banks. There is a glimmer of hope in terms of the bottom line, so the valuation from a historical point of view. Not too expensive right now and, like I said, we like to take a basket approach here based on how we play the development components in each name.
Midcaps and smallcaps: Signs of earnings recovery
Turning to midcap and smallcap valuations, Bhandarkar emphasized a gradual recovery after prolonged underperformance. “The current market rally or even the movement of the last few months has been very narrow and we have seen that the broader indices are not participating. If I am not wrong, the smallcap index is underperforming the Nifty by about 12% or a little more. Now, obviously, there were probably good enough reasons for that. Fair earnings and complex valuations were high in the last year. Last year.”
He added that the latest quarterly results show a promising turnaround. “Now, this quarter, the quarter that passed, which ended on November 15, we are now seeing more than 15% growth in Nifty 500 profit growth after seven quarters and also, we are seeing smallcaps and midcaps leading the growth numbers on YoY basis. If I am not wrong, smallcaps are growing at 2% and smallcaps are growing within 2%. BSE 500 And largecaps are up 12% so, there is some recovery here and I think smallcaps have regained the lead after five consecutive quarters.
He highlighted that festive season demand, which is not yet fully reflected in the numbers, could further strengthen the outlook. “Clearly, our assessment is that this holiday season was one of the best in the last five years and that’s what we’re hearing from the companies we talk to and quite clearly, we should look forward to a strong earnings performance next year.”
As a trusted and reliable news source
Add now!
(You can now subscribe to our ETMarkets WhatsApp channel)