Last week saw the last leg of Q4 financial earnings and we saw a slew of macroeconomic data also come in. There were the auto sales figures too. What do you make of the week at large?
Overall, it was a good week. It has been a good May. So, sell in May and go away did not really work. If you were invested, you harvested good gains. Overall, the market is showing a big divergence in terms of a lot of noise because of the politics, the tariff tantrum that Trump is continuously throwing, Korea, Venezuela, Iran — one or the other issue — is dominating the markets.
Having said that, there is convergent global growth. Indian economy is on the mend. The corporate earnings — if you take out banks, pharma and telecom – were pretty decent this quarter and this year we are forecasting more than 20% corporate earnings growth. The banks will see some amount of turnaround coming through and you will see pharma recovering as well.
Overall, I would say it is getting very difficult to ignore the noise. There is too much noise on the markets but if you stick with the fundamentals, you can still make money in this market. Indices might be flattish. Indices might stay in tight ranges but there is enough money to be made in sectors which are linked to consumption, the rural growth story and which are linked to an Indian economy which is finally turning around again.
We saw Mahindra & Mahindra deliver their Q4 numbers. Largely, the auto numbers for the fourth quarter have been good and even in April and May we have seen the momentum continue. How are you reading into these numbers while some of the companies have disappointed but largely across-the-board it has been a good set.
Yes very good and three points are to be kept in mind. One the CV cycle has turned over the last three-four months and we are seeing very good numbers. That is a good leading indicator into the economy. Second is the base effect of demonetisation and then GST will kick in by July. Next six months, you can expect very good numbers from the auto pack. Third, rural consumption is coming back. The two-wheelers growth has been very strong for the last couple of months. That is also pointing towards private consumption resuming especially in the rural economy.
Autos across-the-board stay a strong buy as we are expecting a bumper year. The valuations are good and they are running up very fast but still it is a good time even for fresh investment in the auto sector.
The preferred ranking would be the tractor makers first, then the two wheelers which have underperformed for the last few quarters and are now finally turning and then the passenger vehicles and fourth would be the commercial vehicles which largely has started playing out already and maybe will take a couple of quarters more. A lot of juice is left and tractors will continue to do well.
What are some stocks that you would like to recommend?
I do not talk about particular stocks, but the best way to build a portfolio for this year is to a) stay with domestic consumption. b) For the international rupee-dollar play, IT sector remains in sweet spot. So, go for consumer staples, automobiles. In cement, we have seen volume pick-up in April even though margins are going down. But if the volume continues, operating leverage comes in and we could see a kind of return of cement coming through and then the rural space — tractor makers, rural chemicals makers and the entire consumption theme comes in.
Stay with the blue chips. The small and midcaps are underperforming this year. So, better to stay with the blue chips among the consumption themes.
Also, finally we are seeing some revival in the IT business models. Given that they are very well-run, cash-rich companies with decent margins, if they get a tailwind then with a lower rupee vis-à-vis dollar they are going to do even better. IT would remain another focus sector for this year.