The optimism seen in the stock market is more linked to the Lok Sabha elections as the market does not expect any major negative surprises from election results, said Mihir Vora, director and chief investment officer, Max Life Insurance. However, even if the same government would come back to power, they may not be a big rally for the market, he added.
Meanwhile, the earnings season so far has been normal but the physical indicators in terms of credit growth, deposit growth, auto numbers are still weak, he said.
Talking about good numbers from corporate banks, he said the relative play between the private sector corporate banks versus the public sector banks continues. The private sector retail banks have also done well at the expense of second-tier non-banking financial companies and PSU banks, he added.
However, a lot of expectations are now getting baked in because the market expects more than 50 percent in earnings growth in FY20 to come from corporate banks, especially the private sector banks. “So, the optimism is there but we are pricing in a lot of that,” he said.
With regards to the auto space, he said they would try to be a little smart because of the availability of high-frequency data they can time it better. Structurally, the house is upbeat on the segment because it remains relatively underpenetrated and with the availability of finance improving over longer-term, it will do well. “So, long-term they remain upbeat because the big picture story does not change,” he added.
On the cement space, he said the sector is confusing and expensive. In the last 3-4 years, valuations of the cement stocks have not correlated to what is happening on cement prices and margins etc. However, the last move in prices has been a good surprise because it is not been linked to hiking in costs, so margins are likely to improve, which calls for re-look at the sector. “We have generally been underweight on the sector but given the sharp move in prices and expected improvement in margins, it is a segment worth considering now.”
The house is overweight on energy segment – refining, petchem and marketing, which is not correlated to the economy. The other space that will likely see traction is IT since that is also not correlated to the Indian economy. Moreover, dollar prices have topped out around 69 to the dollar, so they may gain from this currency tailwind.“Pharma, too, remains interesting because it has been beaten down for so long that you may find good opportunities on a stock-to-stock basis,” said Vora. The house has no direct exposure to the telecom space, only indirect exposure.