Companies
There’s opportunity for strong earnings growth for many years: Nirav Sheth
Summary
In an interview, Nirav Sheth, chief executive officer, institutional equities at Emkay Global Financial Services, says he is positive about most sectors including banks, but with varying levels of confidence.
NEW DELHI : Domestic markets are not far ahead of fundamentals, and there is opportunity for strong earnings growth for several years, Nirav Sheth, chief executive officer, institutional equities at Emkay Global Financial Services Ltd, said in an interview. Barring consumer staples and commodities, he is positive about most sectors including banks, but with varying levels of confidence. Edited excerpts:
Does the valuation comfort persist in the markets or is it time to book profits?
Markets are not far ahead of fundamentals. We have very strong bottom-up economic fundamentals and very strong top-down fundamentals. Both macro and micro economic fundamentals are also in sync. There is an opportunity for very strong earnings gro-wth rate for many years. There are pockets of euphoria, but that happens in any market.
What are your views on the bank index as it led the rally till the recent correction?
Valuation of banks is lower than pre-covid levels. There is a substantial scope for credit growth and asset quality is improving. We are very constructive on banking, including public sector banks. With HDFC Bank and HDFC merger, there may be some impact on margins in transition period but it remains discounted. We are positive on the merged entity as well. We are constructive on the entire space including non-banking financial companies.
Will sectoral rotation happen now? Which sectors hold promise, and which are to be avoided?
We are comfortable with most sectors. In the software space, we believe it is more of a macro play, and developments in the US, where real growth numbers are being upgraded even by the Fed as is reflected in projections after the recent US Federal Reserve meeting. The valuations are in the median. We don’t like consumer staples and commodities but beyond it with varying degrees of confidence, we like most sectors such as consumer and auto. We are positive on the investment cycle, and on all three levers of investments. I am positive on the first lever which is investment by states and central government. The second lever which is real estate has also held well. For the third lever, we are largely bullish on the capex cycle—large, medium and small firms. The cycle is going to be fairly long.
With interest rates likely to be higher for a longer time, what impact do you see on the markets? When do you expect interest rate cuts?
We believe that the interest rates have peaked and we are not much concerned about interest rates now. Interest rates may start seeing cuts next year and in fact Reserve Bank of India may cut interest rates in first half of next year itself.
In US, interest rates may remain higher for longer, which is fine as the economy has held up well. But interest rates in US are also likely to have peaked.
The problem is with the slowdown in Europe and China. China’s slowdown will also mean disinflation.
What is your view on FPI inflows that have turned negative in September and what factors will influence it?
The fund flows by foreign portfolio investors (FPIs) may also turn positive soon. Our sense is that there was a counter trend rally in the Dollar Index which also largely peaked out. So, the momentum in FPI flows will also turn around. From the currency point of view, the rupee has done better than most others and I believe it will hold the current levels.
How concerned are you about rising oil prices?
Oil prices are a genuine concern. But I believe that till $90-95 a barrel for oil prices, we can scrape through. It is only if the prices rise to around $100 a barrel or above, there will be a problem and concern will rise on inflation, especially in an election year. So above $90-95 a dollar, it will have to be watched.
