“The benchmark Nifty-50 is trading at over 20 times its 1-year forward earnings. Though this multiple appears reasonable, it is not cheap compared to other global and emerging markets. Hence, any disappointment in earnings or macro front will not augur well for the markets,” said Kedar Kadam, Director – Listed Investments at the multi-family office and wealth advisory firm.
Ahead of the big event of general elections, Kadam recommends investors to take some money off the table. Edited excerpts from an interview with ETMarkets:
How are you playing the current market momentum? Are there any interesting bottom-up opportunities?Kedar Kadam: The domestic macroeconomic data remains resilient, but the mixed set of December quarter earnings had dented investor sentiment. The benchmark Nifty-50 is trading at over 20 times its 1-year forward earnings. Though this multiple appears reasonable, it is not cheap compared to other global and emerging markets. Hence, any disappointment in earnings or macro front will not augur well for the markets.
Given the gloomy global economic outlook, optimally projected earnings estimate for the domestic benchmarks coupled with high quartile valuation multiples, we remain cautious on markets, and suggest a staggered buying approach.
We prefer largecaps over smallcap/microcaps and value stocks trading at reasonable valuations. In terms of sectors, we remain constructive on themes of capex (engineering/Infra/building materials), pharmaceuticals, 2-wheeler auto, and select specialty. chemical companies.
What is the tone and mood of your clients suggesting about the upcoming general elections?
Kedar Kadam: Well, it’s not just our client, but the overall market setup is indicating the continuation of the incumbent government. In our view, the market is pricing in a BJP victory with a majority, so any disappointments on this front could lead to a big setback for markets.In the run-up to the general elections, how should investors go about their stock-selection strategy?
As I said earlier, the valuations and earnings estimates at which markets are trading, especially mid & small cap companies, there is little room to accommodate any disappointments. Hence, it’s time to stay cautious. The markets are largely pricing in a BJP victory with a majority and the best earnings and economic growth over the next 2-3 years. The market rally over the last 3-4 months has lifted all the boats and now it isn’t easy to separate the wheat from the chaff.
Ahead of the big event, it will not be a bad idea to take some money off the table to create some dry powder. I suggest investors be mindful of trading valuation multiples and earnings visibility.
Which are the underlying domestic themes that you’re extremely bullish on and believe will do well in the longer term?
Well you asked extremely, so the answer is our core multi-year investment themes of Capex (Capital goods/ Engineering/Infra/building materials).
The proposed capital expenditure at Rs 11 trillion in FY25 in the recent interim budget has further solidified our conviction in the theme.
Do you think 2024 will be a tough year for identifying multi baggers compared to last year?
In my view, for a portfolio stock to become a multibagger, the entry point is most vital. The broad-based rally over the last 4 months has already lifted most stocks and has given us many multi-baggers.
So certainly it will be a tough year for identifying potential multibaggers. However, newer businesses and sectors are coming into the listed space, and companies are transitioning to newer business models along with new business lines, which should provide us with opportunities to identify potential multibaggers.
Do you see frontline sectors such as BFSI and IT taking the lead in 2024 after their underperformance in 2023?
The Q3 earnings for both BFSI and IT sectors indicate some more quarters of pain, however, any further correction in these 2 sectors will provide a good investment opportunity from a 3-4 years perspective.
I expect capital goods, infrastructure, renewables and other domestic-focused B2B businesses to dominate in the next couple of years.
Given the slew of events lined up on both the domestic and global fronts this year, what would your asset allocation strategy be?
The benchmark Nifty is trading at 18 times 1-year forward price-earning (PE), which is not cheap, but isn’t expensive either, especially given the expected strong earnings growth over the next two years.
We prefer increasing exposure to large-caps (over small-cap/micro-caps) and value stocks at reasonable prices. We will focus on the downside risk rather than the upside.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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