FIIs are buying to bounce back in the months ahead; bank, auto stocks look attractive, avoid short-term trades

By Manish Jain

The year has been quite interesting. Volatile and unpredictable, all the elements of a thriller. The roller coaster ride has had its own share of heartburn. The Russian-Ukrainian war led to higher commodity prices, which led to slower GDP and squeezed margins. We quickly went from no red flags on Nov 21 to virtually nothing going well on May 22. However, every dark cloud has a silver lining, they say. July 22 was a breath of fresh air and most issues now seem resolved. The Fed’s recent aggressive rate hikes have certainly led to significant demand destruction which, in turn, has led to lower commodity prices and stabilized crude oil prices. This essentially means that the earnings outlook for FY23 is now improving significantly. We should expect sequential improvement in margins across all companies and sectors over the coming quarters.

Also read: MCX August Crude Oil Futures May Fall to Rs 6,700/bbl Amid Volatility This Week; all eyes on US CPI data

India will remain the world’s fastest growing economy

The monsoons are well established. This is also good news and should have multiple implications, including improving demand prospects and easing food inflation. The data already shows a significant improvement. Overall, all things remaining constant, India is expected to continue to be the world’s top fastest growing economy for some time to come. If things go as planned, we should be bigger than Germany in a few years and top US$5 trillion in 5-6 years, making us the fourth country to reach this milestone. This essentially means that the worst of the sale is now over. The momentum has already been broken and things have started to stabilize. We expect India’s share of emerging markets to improve and FII buying to pick up again in the coming months.

Key sectors to watch

So what sectors are we looking at? First there are the banks. Large private sector banks are a good bet. Valuations are comfortable, loan growth looks good and asset quality remains solid. More importantly, they were able to dodge a bullet when it came to the impact of interest rates on the cash book. The second attractive opportunity is the automobile. We believe that with rural growth prospects improving, the chip shortage problem nearly resolved and metal prices falling, it is finally time to invest in automotive companies. Consumer discretionary is again something that should remain relevant for years to come. As affluence sets in, the middle class and upper middle class grow, the lifestyle changes should be quite strong and permanent.

Also Read: Equity Mutual Fund Inflows Fall 42% in July, Debt Funds See Sharp Withdrawals Amid Volatility, Inflation Concerns

Focus on long-term investing

Although we advise buying stocks at this time, we also believe in a couple of things. A strong recommendation is to invest to build wealth. This means buying and holding long-term investments and avoiding short-term trading mindsets. The second rule is to always invest in quality. This way you are always protected when things go wrong.

(Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management. Opinions expressed are those of the author.)

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