Time to bet on Indian consumption-centric stocks: Shashank Khade

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We are betting on Indian-consumption centric stories in infrastructure, capex beneficiaries, recovery plays post Covid, selective consumer discretionary plays and most commonly companies levered to higher future economic growth,” says he.

What is your outlook on Nifty for the rest of the financial year? Will we hit a new bottom or a new high?
Commodity-led inflation may start to abate in the short term. Brent crude continues to be higher by 30% YTD in spite of the correction in the past few weeks. A combination of Central bank actions and inflation tapering trend may soothe the nerves on inflation. US inflation, which stands at a multi-decadal high, may start a downward trend soon. US Federal Reserve and ECB actions and how they impact fragile sentiments is to be seen. Europe continues to reel under pressure of shortage of gas supply. Chinese cities are experiencing a massive covid surge, thereby creating global demand imbalance as well as disrupting supply chains of products supplied by China globally. Deteriorating condition of the Chinese property market does not provide much comfort. Physical demand-supply position of crude and gas continues to be delicately balanced. Markets hate uncertainty and as it recedes, the markets will find its bottom. A change in the risk aversion stance as reflected in the relative strength of the US Dollar could prove to be a leading indicator to track reversal in the equity markets.

Indian markets could remain under pressure in the shorter term unless global uncertainty clears away. FII exodus may continue to put pressure and fatigue of domestic investor buying could lead to fall in the market. We feel it is more likely that Nifty could make a fresh bottom in the near term and trend higher from thereon in the rest of CY22.

Amid all the inflationary headwinds, where do you find comfort or rather pricing power?
In a rising interest rate scenario, equity valuation multiples are definitely challenged. Rich valuations are tested and the hunt for margin of safety starts. The phenomenon has started to play out over the last few months in the Indian markets. Investing in uncertain times is always a contrarian strategy. Markets continue to disproportionately discount risks in an uncertain environment. This leads to opportunities in stocks as valuations start to discount the worst in them. Fall in cement stocks was a good example of this phenomenon.

Given all the macro headwinds around us, is it the time to restructure portfolio if one is too heavily invested in equities?
We feel if the equity investments have been allocated with a long term view and asset allocation has been well thought through, then it is time to hold on. As uncertainty clears off, equity investments will start to render results. If the global conditions induce a deeper correction in Indian markets, it shall be right to step up investments in Indian equities. Incrementally, stocks with sustainable growth in future earnings and possibility of moderate PE expansion could be good for investments. Concept of margin of safety shall become more relevant as we go along. Resetting of high valuation multiples is a reality as global liquidity conditions change.

By and large, banks and IT stocks have been the favourites of institutional investors but due to FII selling both have underperformed. Do you see enough value in banks and IT stocks at this stage?

Balance sheets of Indian banks have been consistently improving over the last few years. Once the present inflationary environment settles down, and growth in credit steps up, the banking sector could be an interesting place to invest in. IT stock valuations have corrected considerably in line with tech stock correction as reflected in Nasdaq indices. An upward revision in valuation is definitely possible as global turbulence settles down. However, after navigating safely through the present inflationary environment, we feel it is time to bet on India centric growth stories as growth looks tenable for an elongated period of time.

Can you tell us which sectors or themes you are betting on now?

We are betting on Indian consumption centric stories in infrastructure, capex beneficiaries, recovery plays post Covid, selective consumer discretionary plays and most commonly companies levered to higher future economic growth.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)