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Three Key Sectoral Bets For Manishi Raychaudhuri Of BNP Paribas

In the near term, it is difficult to find any sector that does not have a headwind associated with it, says Raychaudhuri.

<div class="paragraphs"><p>A dealer points to a playing card in a game of poker.</p></div>
A dealer points to a playing card in a game of poker.

Manishi Raychaudhuri of BNP Paribas SA is betting on cash generators like information technology, consumer goods and auto in these times of volatility where banking crisis and rate hikes seem to test the stability of developed economies.

"In the near term, it is difficult to find any sector that does not have a headwind associated with it," the head of Asia-Pacific equity research at BNP Paribas told BQ Prime's Niraj Shah in an interview.

Platform companies or firms with a back-ended terminal value are not favoured because they will continue to suffer as long as rates and cost of capital remains elevated, Raychaudhuri said.

Key Themes

In the long term, private sector banks will do well because they have a much better asset quality as compared to the public sector banks and are the market share gainers, according to Raychaudhuri. "But it's the near term that one needs to be concerned about as net interest margins may be peaking out and credit growth may slow down."

Despite the pessimistic narrative around Indian IT services, Raychaudhuri said they are continuing to gain orders and are big-time cash generators, which is the focus area in such times of turmoil." So, large frontline IT companies appear constructive."

Some of the pockets of consumer discretionary like automobiles, tractors and SUVs are some small areas one should focus on, according to the strategist.

Although valuations in the fast-moving consumer goods always remain a concern, Raychaudhuri said declining input costs with support to margins and the return of stable rural income with possibility of timely monsoon, makes the space "worth looking at".

Raychaudhuri said real-estate prices in top metropolitan cities drifted downward in the past decade. "Therefore, tier-two and tier-three cities are set to do much better."

He is more constructive on consumer discretionary companies that are involved in the manufacturing of air-conditioners, which prosper in summer and go hand-in-hand with real estate.

Inflation, Rate Hike

Amid the banking crises in the U.S. and Europe, the expert estimates the Federal Reserve to hike by another 25 basis points in May before it retreats once and for all.

"We need to keep a close eye on how sticky and durable core inflation is going to be because difficulties in the banking system of the developed world can spill over on the valuations in the developing world," he said.

For much of 2023, the volatility around management of inflation will continue to be a concern for risk assets. However, inflation may come down to the central banks' target by 2024, according to Raychaudhuri.

Based on historical patterns, he said whenever rate hikes paused in developed markets, emerging economies have benefited, especially through Asian equities and currencies.

With the earnings season around the corner, Raychaudhuri said: "Earnings estimates in India still seem to be a bit inflated as relative valuations remain expensive."

Therefore, his base case is that Indian markets might drift slightly lower by 5–6% and investors will have to contend with such corrections at least for the first half of the 2023 calendar year.

Watch the full interview here: