Over the years, Gautam Duggad, head of research (institutional equities) at Motilal Oswal Financial Services Ltd, and his team have built a track record of identifying lucrative investment opportunities and avoiding non-performers. Duggad shares his thoughts on the markets, economy, sectors, and the latest changes in the Motilal Oswal model portfolio.
Among new additions in the Motilal Oswal model portfolio is Kotak Mahindra Bank Ltd, reflecting Duggad optimism about the banking, financial services and insurance, or BFSI, sector.
The avoid list is long. In fact, the Motilal Oswal model portfolio has seen 13 stocks make a complete exit, including Avenue Supermarts Ltd (DMart) and Sobha Ltd.
Edited excerpts from an interview with Duggad.
The market looks evenly poised as far as large-caps are concerned. Nifty-50 delivered an 18% earnings CAGR (compound annual growth rate) and an 18% market-cap CAGR from 2018-19 to 2023-24. However, mid- and small-caps are trading at expensive valuations.
In the near term, we expect some consolidation in markets for all segments as earnings are taking a breather in FY25 after four consecutive years of very solid performance. For the medium- to long-term, we believe India is most attractively placed on macro-micro parameters and thus expect good mid-teen returns.
We find value in the BFSI sector. It is the only sector that has seen de-rating in the last five years. Balance sheets have been very robust, with asset quality at its best in the last two decades, barring companies with big MFI (microfinance institutions) exposure.
Consumer staples have underperformed in the last four years, and thus, valuations have fallen from the highs. Growth has also softened.
We also find value in technology and healthcare. We are overweight on BFSI, technology, consumer discretionary, healthcare, industrials, and real estate in our model portfolio.
We are currently underweight on metals, oil and gas, cement, defence, and automobiles. Our portfolio choices are dictated by a blend of earnings growth visibility, balance sheet/cash flow characteristics, and growth-adjusted valuations.
Here are the key stock changes in our model portfolio from the October preview:
New additions: Kotak Mahindra Bank, HDFC Life Insurance Company, Power Grid Corporation of India, TVS Motors, Tata Steel, Five-Star Business Finance, Coforge, Dixon Technologies, Medanta (Global Health)
Weight increase: ICICI Bank, HDFC Bank, Larsen and Toubro, Infosys, HCL Technologies, Mankind Pharma, Angel One, Metro Brands, Cello World
Weight reduction: Reliance Industries
Stocks exiting the model portfolio: Axis Bank, AU Small Finance Bank, Cholamandalam Financial Holdings, Bank of Baroda, DMart (Avenue Supermarts), Godrej Consumer Products, Kalyan Jewellers India, Restaurant Brands Asia, Bharat Electronics, Max Healthcare Institute, Ashok Leyland, Hindalco Industries, and Sobha
We are most excited about the big picture opportunity that India offers on growth. We are also enthused by the solid balance sheet management by the government of India and RBI (Reserve Bank of India).
The volatility in macro indicators has reduced considerably over the last decade. The combo of high growth, manageable inflation, healthy CAD-FD (current account deficit-fiscal deficit) combo, stable currency, rising forex (foreign exchange) reserves, and healthy corporate earnings puts India in a very unique spot in a world where growth is scarce and headwinds persist around geopolitical challenges.
The host of macro reforms undertaken by the government over the last decade, the push for digitisation, and massive infrastructure creation have put a solid foundation for a multi-decade robust economic growth.
But we are anxious about execution risks, lack of political will for reforms in case of a fractured mandate in the next Lok Sabha election in 2029, and any big global macro shock.
I will invest it in a staggered manner in identified stocks and mutual funds with a minimum horizon of five years.
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