Jefferies' Mahesh Nandurkar Picks Themes To Ride Economy, Earnings Growth
While corporate earnings and GDP growth will sustain, that won't trickle down to every corner of the stock market, says Jefferies.
While corporate earnings and GDP growth will sustain, that won't trickle down to every corner of the stock market, according to Mahesh Nandurkar.
As various macro indicators suggest the Indian economy has entered a supercycle, investors have to be careful of what themes and trends to invest in, said the equity analyst at Jefferies India Pvt.
“My view on the markets remains tempered because I feel price-to-earnings ratios will undergo some derating,” he told BloombergQuint’s Niraj Shah in an interview. “But among major economies in the next two years, India will be the only country to have double-digit nominal GDP growth rate. That will help us stand out and attract incremental capital.”
To ride the GDP wave, Nandurkar is betting on economy-facing cyclicals, such as industrials and housing.
“There’s room to grow for capex beneficiaries including industrials,” he said. “My sense is also that housing has been a big story already and it has only entered the second year of an upturn that will last 7-8 years.”
Nandurkar said he is overweight on housing and allied themes, as the sector will lead the capex cycle. “Broader capex cycle usually follows the property cycle with a lag of six to eight quarters,” he said. “Four have gone by, so broader capex cycle is incoming and by the second half of 2022 we will see it picking up.”
Nandurkar On Banks, IT
Nandurkar describes banks as a “good sector to pick up”. “Valuations are reasonable and the sector has underperformed. The kind of FPI outflows banking has seen in last six to eight weeks is more than it saw in March 2020, the beginning of the Covid pandemic.”
Among export-oriented themes, information technology and related services is the only outward-facing sector Jefferies likes, and it’s underweight on metals, energy and pharmaceuticals.
“Demand outlook looks strong and hiring looks very healthy,” he said. “In the first two quarters of this year, the IT sector has hired more than in any of the last 10 years on a full-year basis.”
“Companies have cited supply shortages, which I take as a positive since demand visibility is high well into the next 12-18 months," Nandurkar said. Nandurkar said IT stocks are expensive but they “seldom underperform when the demand outlook is strong”.
Another sector that should benefit from strong urban hiring is automobiles, he said. “Four-wheeler names have underperformed and we have seen pessimism around demand outlook due to chip shortage, but valuations are reasonable and hiring can propel auto sales.”
Watch the full interview here:
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