To begin with let’s discuss the market setup now. We have seen a healthy correction in the last two to three weeks. Do you think the interim bottom has been reached and this is where we resume our so-called bull trend, or do you see a move to this side?
Anirudh Sarkar: So, I would say that obviously the latest correction is not going to bother me because frankly the bull run that India is in is not like a one year or 18 month bull run, it is a multi-year bull. Run to where we are. Short-term hiccups, profit booking, price corrections, timing corrections, I think that’s how the market is built. So, frankly, I am not too worried about the recent correction. So, I have been telling investors for the last two months that from now till the end of this financial year, don’t expect any big rally in the market because after a great year, which we had. Last year, some sort of price correction and timing correction was definitely needed to bring the market back to health. And that is what we are seeing.
And over the next, I’d say six months, expect a 4% to 6% price correction and maybe a six-month time correction is something that I’d be more than happy to have in the market because it’s really going to bring back. Back to health and market strength.
One thing on earnings, given the fact that second quarter earnings will start today, what are your overall expectations from the second quarter numbers and the fact that the overall consensus expectation is that profit growth is expected to be the lowest. Over the past 17 quarters, do you see analysts downgrading their FY25 EPS estimates?
Anirudh Sarkar: I think a lot of expectations have already been built that this quarter, as you rightly mentioned, will be the lowest quarter in terms of earnings growth in the last 16-17 quarters. Broadly, I would say that we will end the year at around 8% to 10% of earnings growth in FY25, which means that the first half of the year will be weak and the second half of the year will be very good.
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I think everyone’s eyes are going to be commentary next because that’s something that’s going to be very important. This quarter will be very bad anyway, partly because of the base effect, partly because of the elections where most of the capital goods activity has been on the back foot and demand is also a bit weak, I would say. , Agricultural India Vol.
So, more importantly, I am looking for commentary for the festive season, which is coming up as you may have seen that the festive demand is what most of the consumer good companies are banking on.
We saw the first kind of green shoots there with textile companies saying that there is an increase in demand in the month of September. So, more than numbers this quarter, I’ll focus on forward guidance.
But what about protection as a pack and other PSUs? Today, of course, Mazagon Dock, Garden Reach, many of these public sector companies like NTPC, BEL, are doing the power grid right. Time to revisit some of these PSU names?
Anirudh Sarkar: PSUs Overall, I have been bullish for the last four years. If I were to break up the last four years, I would say that the first two years I was clearly bullish. The last couple of years have been somewhere in which I have been making some profit but in the last six months I have overall reduced my allocation to PSUs, partly because valuation and valuation comfort is something that many companies still don’t have. PSUs. Normally still, I’d be overweight PSUs compared to the broader index, but yeah, not something I’d want to go out and buy.
A lot of these names that you mentioned in the defense sector, whether it’s HAL, BEL, I think we’re in a very good structural move as a business, which they will continue to see good growth in execution of their order book. next two years. But as an investor I will wait for better valuations.
You seem to be underweight especially in sectors like banks and FMCG. Now that the valuations of banks are cheap, then you can also explain why you are bearish and when it comes to FMCG in particular, rural recovery is expected this festive season and monsoon being strong. So, why are you bearish when it comes to FMCG and banks?
Anirudh Sarkar: So, if I talk about banks first, banking and financials, if I have to name a few, I’m more bullish on non-banks and when I say non-banks, I’m more bullish. At various financial services companies, because that is where the growth will be very high. So, I’m more bullish and betting on companies in the asset management industry, companies in the wealth management industry, companies in the insurance space, because that’s where the growth is going to be higher than what we’re going to see in banks.
The main reason for the underweight on banks is that I think the loan-to-deposit ratio, which has been a concern for a long time, continues to be painful. On the back of that, credit growth is something that is not as high as it was in the past and on top of that, if the interest rate cycle turns and there is a fight between banks for deposits, I think NIM contraction is something that most banks will have to face. .
With all these headwinds, it’s not that I’m negative, but yes, I don’t see banks doing better than non-banks. So, if I have to choose between banking and financial sector, I place my bets on non-banking financial services companies. Coming to the FMCG space, I would reposition the FMCG basket into the consumption basket.
Now, within consumption, if I had to bet on sectors, I would bet on urban consumption, which is more resilient, where income and demand continue to grow and that’s why I would be more bullish on urban consumption. Agricultural consumption. Yes, agricultural consumption is expected to do well, but we have to wait as the trick for FMCG is volume growth, not price growth.
So, volume growth is something I want to get more comfortable on. We should see volume growth of around 4% this quarter. But yes, I would like to see some consistency in that volume growth over the next couple of quarters before I bet because valuations are not cheap even for FMCG companies.
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