Macro numbers do not currently look good but the base is very interesting, said Sailesh Raj Bhan, Deputy CIO-equity Investments, Reliance Nippon Life AMC. He believes the cyclical downturn is bottoming out.
"It is very low and 12 months out you will have a much better credit environment, much better-reported growth environment because from where we stand today the low base of 4-5 quarters will help in broad-based recovery,” he added.
As growth starts to rebound, corporate lenders will be the biggest beneficiaries and valuation wise as well the sector looks attractive at current levels, he said.
“Given that it is a cyclical upturn we are looking at from the corporate lending point of view, our focus has generally been on leaders in those categories. Large corporate banks with huge CASA franchises,” said Bhan.
According to him, other categories which are today under stress are a function of a lot of external conditions. “Auto has been suffering, in addition to demand, several other factors like BS-VI transition, increase in insurance cost and several other variables have impacted. This season has seen a lot of inventory correction and that pain is now behind. So reported numbers for the auto space over the next 12 months will be way better than what we are seeing today,” said Bhan in an interview with CNBC-TV18. So, these spaces that is corporate lenders, autos look interesting, he added.
Talking about the pharma space, he said, “Given the slowdown, the sector has seen over the last 3-4 years, the base for valuation for this sector has come off and the companies’ trade in line with the market in most cases or with very little premium despite having strong domestic businesses.”
According to him, “Directionally, we are entering an early double-digit earnings growth for the pharma sector. Except for selective bad news with keeps coming for a few companies, broadly sector earnings and domestic pharma earnings have been very strong.”
He further added, across the sector nearly 60-70 percent of the sector has started to outperform. So, broadly the sector is way better off than where it was 12 months ago. “The outlook for the sector in terms of earnings growing at about 12-15 percent for the next three years, appears like a strong case and that will be an important driver for investor interest,” he added.
The house is also overweight on consumer discretionary and underweight on consumer staples. Financial services companies also offer material opportunity within the consumer side and consumer healthcare is far more attractive than consumer staples, said Bhan.