Domestic benchmark indices witnessed a volatile trading session of the weekly futures & options expiry. Both indices snapped 6-day winning streak to end in red on Thursday. However, in the last few weeks, Indian equity markets have rallied on the back of FII inflows, strong quarterly earnings by index heavyweights and declining volatility. Both indices have recovered around 10 per cent in the last one month. Growth at a Reasonable Price’ is an emerging theme that provides good long-term risk rewards in the current market environment, said Neeraj Chadawar, Head – Quantitative Equity Research, Axis Securities in an interview with Harshita Tyagi of FinancialExpress.com. Automobiles, Discretionary consumption, and Industrial themes look attractive in the near term over the export and commodity sector, he added. Here are the excerpts from the interview
Nifty IT index has fallen by more than 25% so far in 2022. What is weighing on this sector and will the weakness continue?
Top-tier IT companies posted a robust set of numbers led by large deal wins and notable demand for digital transformation. However, miss on the margin front on account of higher travel cost and wage cost. Though the demand is on the rise, supply-side challenges remain a key concern that may restrict revenue growth momentum moving forward, that is the reason for the fall in the prices on a YTD basis. Any visibility on the sustenance of the economic growth in the developed market will bring respite for the sector, it is in wait and watch, at least for one quarter.
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War, inflation, Yields, rate hikes, and crude oil prices still remain the relevant concerns for equity markets for the rest of 2022 – how should investors prepare their portfolios?
The growth theme has outperformed all other styles by a notable margin in the last one/three months from the oversold zone. While Growth stocks suffered the most in the recent correction, they have recovered rapidly over the last three months on account of
a) Cool-off in commodity prices
b) Robust domestic demand
c) Reasonable valuation after the correction
We believe ‘Growth at a Reasonable Price’ is an emerging theme that provides good long-term risk rewards in the current market environment.
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Which are the sectors and stocks that you would look at which have fallen due to FIIs rout, or DIIs not buying, and now are looking attractive irrespective of the rate hike?
In the last ten months, 73% of the FIIs Outflow has been from the Financial and Tech sector. Firstly, we believe, the banking space could deliver decent returns in the current calendar year. A sharp reversal could be expected in BFSI stocks which got impacted due to the present volatility as the outlook for the sector has significantly improved. We could see the improvement of ROE for top-tier banks in upcoming years. This is a good time to increase allocation towards top-tier private banks with a perspective of 12-18 months.
What are your overweight and underweight sectors, and stocks for the next six months?
Though the central banks are focusing on controlling the inflationary scenario by raising the interest rates along with that now the government is also taking steps to control the input cost pressure and widening fiscal deficit amidst the elevated level of crude & commodity prices. Given the backdrop of rising concerns over the global slowdown, aggressive tightening, and domestic interest first, the export-oriented themes are likely to be cautious in the near term. The market will wait for more clarity on Inflation and the demand scenario front.
On the positive side, given a domestic interest first and India as a domestic consumption economy, local or domestic-oriented themes are likely to perform better in the near term. We believe that profitability will shift from commodity producers to commodity consumers, going forward. Keeping this in view banks, Automobiles, Discretionary consumption, and Industrial themes look attractive in the near term over the export and commodity sector.
(The stock recommendations in this story are by the respective research analyst. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)