Go for a barbell strategy in cement; a strategic repositioning in BFSI and FMCG: Sumit Bhatnagar
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, Fund Manager,, recommends a barbell strategy for cement investments, combining segment leaders with companies benefiting from regional price hikes. LIC MF's portfolio adjustments involved reducing IT and capital goods holdings while increasing positions in BFSI and FMCG. Allocations shifted from mid and small-cap to large-cap stocks, reflecting a strategic repositioning.With this event out of the way, now the ball is in Pakistan's court on what level of escalation they do. Going by history, we do expect markets to move back to the usual trajectory. We are cautiously optimistic about the markets over the short term. We believe that leaving aside the global uncertainty, Indian macros are shaping up pretty well and with the steps that government has taken in so far as your budget was concerned or the liquidity infusion measures that were taken or the regulatory easing that was done, we expect our economy to perform decently from here on and we think 6.5% GDP growth is definitely a doable as also we expect decent earning growth going forward led by the measures that the government has taken.We view defence as a structural opportunity. The government's focus on indigenisation plus the focus on making them the export platforms is a very structural story to play out. While in the near term we can say a lot of positives are priced in, but the opportunity definitely exists both from indigenisation and export perspective. While we have substantial deployments in the defence space, maybe it is time to take some profits off the table in near term.We expect consumption to pick up from here on. The kind of steps that the government has taken, the tax cuts that have happened in the Budget which should support urban consumption, plus the liquidity measure should lead to reduction in interest rates, plus the benign inflationary environment, the way inflation has cooled off. All these should support your urban consumption.At the same time, rural consumption should get support from good crop expectation, normal monsoons, and decent reservoir levels. We expect FMCG, which has been an underperformer for the last 18 or 24 months, to start showing some bit of a pickup in both volume terms as also some bit of an improvement on margins as well.For us, the key deletion or key reduction in weight was around IT, as also a little bit of profit taking across the capital goods space. While we added positions in BFSI, as also some bits of positions in FMCG, which even now we are looking to build positions in as we get the right valuations. As far as market-cap-wise allocations go, we have trimmed some positions in mid and smallcap space while we have added the allocations to largecap space.See, first of all, rerating, I would say markets are broadly fairly valued. So, it would be difficult to say a particular sector is getting rerated. We would rather focus on individual stocks where there is earnings visibility, where there is a tailwind appearing, where we see select pockets where we can see ratings. But at a sector level, we believe most of the sectors are fairly priced at this point in time and so far as earnings growth is concerned, we do expect decent earnings from the consumption theme. BFSI and defence also should post decent earnings and sectors like cement should do reasonably.See, in so far as segment is concerned, rather than taking individual names, I would suggest a barbell type of a strategy where you play the segment leaders on one end and companies that are likely to benefit from the price hike that we have seen in the regions like south or east. So, it can be a combination of this combination of largecap and a mid or smallcap company within this sector. If someone is still looking for compounders, then even companies based out of the north and east can be looked at.
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