At a time when many investors are worried about the impact of the US-Iran conflict, Canara Robeco AMC’s Shridatta Bhandwaldar said that despite the near-term volatility, the fundamentals of Indian markets are in a good shape. Explaining his stance, he said, “The last quarter earnings were in double digits, so earnings have clearly started recovering along with surplus liquidity in the economy.”
Also, the credit growth has also started recovering while the capital expenditure from government is going on as projected. On top of that, government has given personal tax cuts as well as GST cuts. “So, when I look at all these combinations, there is a good likelihood that the consensus estimate of 13-15% earnings over the next 2 years, is likely to remain,” he added.
Impact of the recent Iran – USA conflict
Bhandwaldar believes that the volatility due to the conflict will be limited to near term in terms of increasing energy prices and trade bill and challenges related to balance of payment. He expects. the conflict to end in a few weeks due to lack of financial support for Iran from its allies.
If the volatility in the markets continue, investors should use this as an opportunity to buy, as investors are likely to get assets at a comparatively cheaper valuation and if the argument of the conflict ending in near-term is acceptable, then a longer correction is an opportunity to buy.
Valuation in the domestic markets
According to him, the large caps are approximately fairly valued while the mid-caps and small caps are still trading at higher than their historical valuations. “In the mid cap category, the earnings still continue to be good and have not experienced a slowdown, so that while the valuations are higher, the earnings are also higher, which has been reflected in the last two years as well as in the last quarter,” he explained.
Even in the small cap space, the unrealistic expectations of earnings built up (like they were 2 years back), are no more there. So, if the expectations are muted, even if the valuation is little higher.
All three market caps from a valuation perspective, incremented earnings and growth dynamics are looking significantly better than 18 months back.
Recommended segments and themes
Bhandwaldar is fairly constructive on themes like auto ancillaries, consumer discretionary (including quick commerce, retailers, hotels, aviation and grocery retailers). He is also selectively constructive on industries such as defence, transmission and distribution. He is also bullish on pharma and smaller sectors like telecom and aviation.