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ETMarkets Smart Talk: Long term bets! Axis Bank, ICICI Lombard look attractive from BFSI space: Manish Jeloka

Mumbai, Oct 21, 2022

“We are extremely positive on the banking and NBFC space as asset quality issues are behind for the sector while credit growth has picked up and is expected to remain strong over the next few years,” says Manish Jeloka, Co-head P&S at Sanctum Wealth.

In an interview with ETMarkets, Jeloka said: “We are positive on Axis Bank NSE -3.01 % and ICICI Lombard NSE -1.83 % in the BFSI space while we like Sapphire Foods NSE -2.10 % and Varun Beverages NSE -1.54 % in the consumption space” Edited excerpts:

What is powering the rally in the Indian market – is it the festive mood, change in global sentiment or earnings expectations?
Indian markets have performed well relative to most global markets which is reflective of our economy’s resilience amidst global uncertainties.

Better earnings visibility and a healthier balance sheet of India Inc. are some of the factors that are likely to have played a role in relative outperformance.

Diwali is just around the corner – what is your advice to investors for Samvat 2079? Where is the market headed? Are new highs in the offing?
Post the spectacular rally from the Covid lows in March 2020, markets have turned volatile over the past year due to inflationary pressures globally which is forcing global central banks led by the US Fed to tighten rates aggressively in order to bring down inflation.

While we expect the volatility in the markets to continue in the near term as the US Fed continues its rate hikes, we believe that inflationary pressures should start easing off in H2CY2023 which will allow central banks to cut rates which will be positive for the markets.

In such a scenario we will advise investors to use any near-term volatility in the markets to increase exposure to equities as we expect the markets to stabilize and start on a new uptrend in CY2023 once inflation levels come down.

We are in the last quarter of the calendar year 2022 – would we be able to see some fireworks, or the holiday season will keep the mood subdued?
Though the investor community would more than welcome some fireworks especially, during the toughest period seen in the last decade, no bad news would also be good news.

We believe that better than expected set of results coupled with any positive surprises on global inflation could lead to fireworks in the market.

Will the rupee depreciation continue in the December quarter? Which sectors are likely to get hit the most?
With the US Fed is likely to raise the fed fund rate by ~125bps in the December quarter we expect the dollar rally to continue thus putting pressure on the Indian Rupee.

While the continued rupee depreciation will be positive for export-oriented sectors like IT, there is going to be some negative impact on the manufacturing sector as rupee depreciation will lead to input cost pressures thus adversely impacting margins.

Few global investment banks have raised concerns of the rally seen in Indian markets what are your views? Do you think that the outperformance is sustainable?
Though the concerns emanating from Global Investment Banks around valuations may be legitimate in a normal environment, its well evidenced from publications across the globe that India is the lone bright spot right now.

Our high-frequency indicators are highlighting this and given the bright demand outlook as well as the inclination by corporates to undertake growth CAPEX, the momentum is likely to sustain.

Factors like abating margin pressures and low leverage levels would continue to support corporate earnings while factors like increasing retail participation and scarcity of options would lend support to the markets.

We have a good selloff in markets across the board – any particular stock(s) which is still a good buy on dips stocks for a period of 1 year?
We are very positive on the BFSI, and consumption space given expected multi-year growth seen in these sectors.

We are positive on Axis Bank and ICICI Lombard in the BFSI space while we like Sapphire Foods and Varun Beverages in the consumption space.

How should investors deal with high PE stocks, especially the ones which are trading above their industry PE. What are the other valuations parameters that one should deploy while taking a buy or sell decision?
High PE is not bad if it is justified with strong earnings growth and other factors like a strong moat and best-in-class capital allocation policy.

In the current market environment of high volatility, it is best to take a bottom-up approach and opt for stocks that are better placed to deliver growth rather than just focusing on absolute valuation.

Any theme which are multiyear themes that has recently surfaced and could well produce wealth creators of the future?
We are extremely positive on the financialization and consumption theme and believe that both are multiyear themes that will playout over the next 3-5 years.

We are extremely positive on the Banking and NBFC space as asset quality issues are behind for the sector while credit growth has picked up and is expected to remain strong over the next few years.

Consumer discretionary and contact heavy service industries like hotels and QSR were amongst the worst impacted sector due to the Covid outbreaks. With the Covid-related issues behind us, we expect these sectors will continue to deliver outperformance going forward given pent-up demand.

Any sector(s) which you think investors should avoid in December quarter? If yes, why?
Rather than avoiding any particular sector, we believe that it would be a better approach to avoid companies with large exposure to Europe given the sharp slowdown in the European economy.

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