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Kotak Amc Expects Banking Rally;  Bets on the industrial and home improvement sectors


“Overall if we see that the flow of information has turned negative. Many countries are grappling with a new variety of COVID-19, energy prices are rising, and there are concerns that interest rates may start to rise to control inflation in developed markets. So globally the sentiments have turned negative, the markets have corrected there and there is probably some amount of profit in India, ”Nilesh Shah, MD, Kotak Mahindra AMC said in an interview. with CNBC-TV18.

Regarding the banking sector, Shah said: “In the banking sector, we have seen an underperformance against the general market for a while and now, with good results coming from the leaders of the banking system, this underperformance is. catching up. Second, there were concerns about NPAs in the banking system thanks to the moratorium granted due to COVID-19. Now, with the pace of economic recovery, fear of NPAs is also fading. “

He added: “We are seeing good results in this sector. If you look at the results reported so far excluding banks, earnings growth is around 27% from September 2019, fear of NPAs is fading, and the broad market underperformance is. in the past put all of these things together and the banking industry is now catching up. We still believe there is room for a recovery in the banking sector. However, it will be much more specific to stocks than the market at large. “

Shah thinks large-scale sector rotation seems to be the theme of the market. He said: “Over the next 6 to 12 months, there could be a sector rotation from expensive stocks to cheap stocks. Again, the definition of expensive and cheap is not universal. It depends on investor to investor. But basically if we’re going to sum this thing up, it all depends on what’s priced in the market, what’s priced in the current market price. “

“Generally speaking, I see the market shifting from expensive stocks to cheap stocks or stocks where the market thinks that what’s being factored in, in terms of growth or earnings, is unlikely to materialize due to of a change of events, ”Shah said.

Regarding the industry and home improvement sector, he said: “From a general sector point of view, we see that some of these sectors on the industrial or home improvement side. the habitat should be doing well. On the industrial side, we can observe a recovery in investment spending in most of the private sector’s balance sheets. Steel, cement, sugar, chemicals, all these sectors spend money. The companies themselves are deleveraged, they are sitting on enormous liquidity. If that money is deployed in mutual funds or bank deposits, you are unlikely to achieve higher single digit returns. In business, it is possible to make double-digit returns. The investment cycle will therefore begin and this is where industrial companies, engineering companies should outperform in a large market. “

“The second thing is the theme related to home improvement. We have seen some of the building material companies, for example in tile, showing volume growth of about 37%, cement has seen volume growth of about 14%. We believe that this kind of volume growth may continue for some time as the real estate cycle picks up and many people may try to modernize or improve their homes. Thus, the home improvement industry is expected to experience an expansion in volumes and hopefully an expansion in margins. So, apart from banks and financial services, we remain overweight industry and home improvement, ”he said.

In the market, Shah said, “The biggest risk to the market is disappointment in earnings. So far, I think about 14 Nifty companies have reported results and their profit growth collectively is around 31% versus an expectation of 24%. As long as this trend continues, the market decline is limited to this extent. The holiday season has started. The numbers so far have been encouraging, especially in consumer durables and electronics, but we need the holiday season to expand. It should also include basic consumption. If the third quarter results are as good as the second quarter results then I think there is a limited downside in the market. “

For a full interview, watch the accompanying video.

(Edited by : Dipikka Gosh)

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