By Manish Jain
The one year has been quite interesting. Volatile and unpredictable, all elements of a thriller. The roller coaster of a ride has had its own share of heart burns. The Russia-Ukraine war led to rising commodity prices which in consequence led to slowing GDP and compressing margins. We quickly went from having no red flags in Nov ’21 to pretty much nothing going right in May ’22. However, every dark cloud has a silver lining, they say. July ’22 has been a breath of fresh air and most of the issues now seem to be out of the way. The recent aggressive rate hikes by the Fed has definitely led to significant demand destruction which in turn has led to a drop in commodity prices and stabilization of the crude oil prices. This essentially means that the earnings outlook for FY23 now improves significantly. We should expect a sequential margin improvement across companies and sectors in the coming quarters.
India to remain the world’s fastest growing leading economy
The monsoons have set in nicely. That is also some good news and should have multiple implications including improving demand outlook and softening food inflation further. The showing data is already showing significant improvement. Overall, all things remaining constant, India should continue to remain the world’s fastest growing leading economy for some time to come. If things go our way, we should be bigger than Germany in a couple of years and top US$5trillion in 5-6 years, making us only the fourth country ever to achieve the milestone. This essentially means that the worst of selling is now over. The momentum has already been broken and things have started stabilizing. We would expect India’s share in emerging markets to improve and FII buying to come back in a big fashion in the coming months.
Key sectors to look at
So, what sectors are we looking at? First is banks. Large private sector banks are a good bet. Valuations are comfortable, loan growth is looking good and asset quality continues to remain strong. Most importantly they have been able to dodge a bullet as far as the interest rate impact on the treasury book is concerned. The second appealing opportunity is auto. We believe with rural growth outlook improving, chip shortage issue getting near resolution and metal prices declining, it’s finally time to invest in automotive businesses. Discretionary consumption is again something that should continue to remain relevant for years to come. As affluence sets in, the middle class and the upper middle class expands, lifestyle changes should be quite strong and permanent.
Focus on long-term investment
While we do advise buying into equities right now, we also believe in a couple of things. One strong recommendation is to invest to create wealth. That means to buy and hold, long-term investment and avoid short-term trading mindset. The second rule is to always invest in quality. That way, you are always protected when things take a downturn.
(Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management. Views expressed are the author’s own.)