Not geopolitical tension, worried more about higher for longer rates: Sampath Reddy
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Synopsis
“The domestic facing sectors have been currently doing much better especially the financials. The export-oriented sectors, especially IT, are still facing challenges in terms of overall growth. That is why the domestic facing sectors are much preferred. But within the exports, especially the pharmaceutical export, the generic pharmaceutical exports segment continues to do well. ”
History teaches us that any geopolitical tension, if not closer home, acts as a buying opportunity for the market if you do see a knee jerk reaction?
That is right. And, yes historically that has been the case and if for any reason whether it is geopolitical or others, the market corrected sharply, that ended up becoming a very good buying opportunity. Currently, we have been slightly cautious in the early part of the year. But as we move ahead, the earnings growth is catching up quite well.
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The higher for longer is even today the longer in the sense market is probably believing that a couple of quarters of a longish period, but the longer in this sense, could be a much longer period beyond a couple of years or so. So if interest rates were to stay elevated for a much longer period, then we have to see how the valuations behave and there could be a risk to the valuations if interest rates were to remain higher for a longer period of time.
But coming to the geopolitical issues especially now from an Indian market point of view, we are much less vulnerable now, even on the back of crude price rise. The relative impact would be much less given our strong macro fundamentals. Overall, the geopolitical issues have not become a cause of worry but the interest rates going forward higher for longer is a little bit of a worry in terms of overall valuations.
The domestic facing sectors have been currently doing much better especially the financials, credit growth quite robust upwards of 15-16% and NIMs also expanded quite well. Also, if you look at the asset quality one of the best asset quality which the banks are sitting on today. Even on the valuation front, the BFSI space I would think will now look much more attractive vis-à-vis its own valuation that we had seen in the past.
Stocks Recommendations
The real estate sector, especially from the post Covid lows, has recovered very well. Most of the companies are now going back into full work from office mode. The demand for the office space is also improving quite well. Even though we do not have much of an exposure to the real estate sector per se, overall the market for the real estate is also looking quite good and some of the better way to play, from our point of view, is that we are looking at more of a REITs as an investment income rather than looking at stocks there.
We really do not have much of an exposure to direct real estate stocks but in that overall space, REITs are a better model for people like us.
This is a good model to play the entire real estate trend. You do not have much exposure to real estate, but where have you been adding exposure? Which sectors apart from let us say financials, are you adding weights on?
The financials we have been quite well invested in. Apart from that, as I was mentioning the generic pharmaceutical exporters, we have also been adding quite well there. Also, we have a decent amount of exposure in industrials. By and large, most of the domestic facing consumer sectors or even the capital goods and infrastructure space are reasonably exposed. Probably only IT is where there seems to be headwinds in terms of the current in the very near term perspective. Our focus has been largely towards domestic consumption-oriented or domestic infrastructure growth-oriented sectors and that is where we have been adding today.