According to Nishit Master, Portfolio Manager at Axis Securities PMS, India remains one of the most expensive markets globally due to its strong growth outlook compared to other economies. While the current market multiple is higher than the long-term average, Master believes that India is not yet in a bubble zone. The froth in the market is primarily seen in the small and midcap space.
Looking ahead, Master expects certain sectors to report strong earnings in the September quarter. These sectors include pharma, industrials (including capital goods), auto/auto ancillaries, banks, and NBFCs. On the other hand, sectors such as metals, IT, and chemicals could report weaker earnings in the quarter.
When it comes to investing in midcap and smallcap stocks, Master advises caution. While the small and midcap index appears to be expensive, he suggests focusing on quality names in this space that have a high probability of generating sustainable free cash flow and are available at reasonable valuations.
Regarding the upcoming RBI policy meeting, Master believes that the central bank will likely hold interest rates steady, given the lower-than-expected August inflation and sticky core inflation. However, he highlights the recent rise in crude prices as an area of concern that the RBI will closely monitor for its potential impact on inflation.
Looking at the US Federal Reserve’s policy meeting, Master expects the central bank to maintain its key interest rates in September. Factors to watch during this meeting include the projected dot plot, which signals the future course of policy rates, as well as expectations of growth, inflation, and comments on the labor market and financial stability of small and midsize banks.
In terms of the defense sector, Master believes it is a structural growth story in India. However, he expresses concern about the high valuations of defense companies and the market’s complacency towards the volatile nature of their earnings. While the order book and earnings of defense companies are expected to grow, Master warns that this growth will not be linear and there may be quarters or years of disappointment.
Source: Moneycontrol.com