In the ever-changing market condition, when you want an all-weather sector, Ambareesh Baliga, market Analyst, answers, “When you talk of the weather, there is no certainty. You could have a hailstorm in the midst of summer.”
Any company which is fleet-footed and can adapt to the changes has chances to gain because there is no sector that is fit for all weather. However, in the current scenario, Baliga feels optimistic about infrastructure, railways, defence, specialty chemicals, FMCG, and the telecom sectors.
Infrastructure, Railways, And Defence
He points out the budgetary allocation to infra and railways to indicate his attention to these sectors. “It’s multiple times possibly than what the government was spending 8-10 years back. So, there is a huge opportunity there.”
Adding to it, he says defence is also a focus area for the government. These sectors have been performing decently in the past, but in the next two-three years, he sees these sectors performing well because of higher spending. Along with it, material suppliers, and service or equipment providers will also benefit in the foreseeable future as a trickle-down effect due to the distribution of cash flow from the higher budgetary allocation to these sectors.
“So, the auto sector, earth moving, infra and construction-related sectors, railway equipment and rolling stock manufacturing, I think, across these sectors we should see decent growth in the foreseeable two-three years, and that is where I think one should be investing,” he says.
His favourites are Mahindra and Mahindra, Maruti, and Tata Motors in the auto sector, BEML in earth moving, L&T in infrastructure and construction, and Titaghar Wagons Ltd in the railway equipment. However, he finds Titaghar has gone sharply up, and thus, one should wait for a correction before buying.
One more sector he sees good performance in the foreseeable future is the specialty chemicals. According to him, the sector did not do well in the last 18 months. But, over the last 3-4 years, quite a few Indian specialty chemical companies have come to the global forefront in their specific segments. The China-plus One and Euro-plus One are playing out extremely well for these companies and they are expected to continue doing so.
He says: “This is one space where I would be investing in. Deepak Nitrite, Naveen Fluorine, Vinati Organics, I think these are a couple of them, which one could be looking at.”
He shares that in the next 4-5 years, the existing companies which have ruled in the last 2-3 decades will see a disruptive change coming from Reliance Retail. It is because the FMCG sector has been depending on the distribution network, which these bigger brands were controlling.
In the last 2-4 years, a lot of distribution network has changed. Reliance is controlling a decent part of the network right up to the grocery shop. They are even buying old brands and remodelling them to bring them back.
He says: “The one who finally controls the shelf space is a winner and this is exactly what Reliance is trying to do, both through the unorganised grocery shops, and organised retail where they are the largest. So I think that could be a major disruption going ahead so that is one space we watch out for.”
“I am decently confident of the consumption story going ahead,” he says.
He is bullish on the FMCG space and the existing companies which have not done too well in the recent past but have this window of the next 12 -18 months after which there could be a disruption.
On the disruption question, he believes Jio Finance could also be a disruptor.
They could disrupt it for Bajaj, which saw heydays and enjoyed the sunshine almost since 2013 when public sector banks went off the radar with non-performing asset (NPA) issues. Jio can now possibly disrupt the space with the sort of data and connectivity they have.
Telecom is Baliga’s other preference because “It is one of the necessities in life today.
“So I normally say, after air, food, clothing, and shelter, the next requirement is telecom for most of the population,” he says.
He adds that one needs to have companies that keep changing with the change in the environment, which is not easy for everybody.
On the recent interest rate developments, and opportunities for the banking sector, he says that in his stock portfolio, some of the public sector stocks have doubled from the level they were bought. In the last 12-18 months, the balance sheets of banks have improved, and credit growth can be seen there. But at the current level, most stocks in the sector are fully priced, be it PSU banks or private sector banks, he says.
Yet, he sees no reason to sell them off or to go out and start buying the bank stocks at this point.
“In the rate hike cycle, the net interest margins (NIMs) expand initially and then they start flattening out. We are in the phase where we see them flattening out. Although we have seen extremely good credit growth of close to 17 per cent in the last one year, but with this higher rate, I think at least for the next quarter or two, we should see the credit growth slowing down, especially on the SME and retail side,” he says.
Expecting a rate cycle slowdown from the January-February 2024, he adds, “Maybe for the next quarter or two, I would be a bit cautious, and next time in case I see a correction in the banking space, I would start buying into banks towards the end of this year.”