Not top-down, it's time to go stock specific; wait for clarity on consumption stocks: Harsha Upadhyaya

Time of India

23-07-2025

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, CIO-Equity,, says the earning season may see slow headline growth . Cement and quick commerce sectors show strength. Industrials and defence also look promising. Stock-specific bets are favored over broad sector views. Telecom and aviation sectors are expected to perform well. Select banking and financial stocks are also doing well. Within the chemical segment, specialty chemicals stand out. Individual stocks may offer better growth than the market average.As far as the earning season is concerned, this is going to be a subdued kind of a season as far as headline earnings growth is concerned. However, certain segments of the market are delivering a good set of numbers, and that is where incremental money would probably move in. Sector-wise, cement has done well and is likely to continue doing well. We have seen quick commerce numbers coming in very strongly, and that is another subsegment where things are fine.We also believe that there are certain pockets of industrials and defence where the numbers are going to be quite strong. So, rather than taking a sectoral top-down view on the market, it is prudent to take stock specific bets depending on where the valuations are, where the earnings are expected to grow, etc.It has been a moving goalpost and we have been seeing some of these deadlines coming and going and new deadlines coming in again. We still do not know for sure which way the tariffs are going to go, when is that finally going to come out in the public, etc. However, it is very clear that probably the relative impact on Indian exporters compared to some of our peers in the Southeast Asian market and Asian markets would be relatively less worst off.So to that extent, we should be fine and if you look at our own portfolio, we have taken some prudent measures many quarters earlier just before the US elections when we tilted our portfolios more towards domestic-oriented businesses thinking that the domestic businesses have better resilience in terms of growth and the valuations were also a lot more conducive at that point of time, and still that view continues and we have not really increased our exposure to exporters in a big way apart from chemicals which has turned around in terms of the cycle itself and also compared to China our tariff rates are expected to be lower.So, to that extent, it is unlikely that we will see big negatives from tariffs on that sector. But by and large, we will still wait for full clarity, then only we will probably look at adding more exporters.That is why I started saying that a top-down sectoral view at this point of time may not be the right way to construct your portfolios and within every sector you will see winners and losers as you go ahead depending on how they deliver on earnings. However, there are certain segments within the domestic businesses where there seems to be a reasonable amount of clarity in terms of earnings going forward.For example, telecom should be a good area in terms of how the earnings are going to pan out over the next couple of years. Aviation is another sector. We have seen similarly good numbers from cement and we also expect it to continue delivering better numbers as on the raw material side, there is a lot of positives and also the volume growth as per the commentary that we have seen from certain managements seem to indicate that probably things are going to improve on the volume front. So, overall, this is another segment.Within banking and financials, certain names are doing well and the impact of repo rate cut on the NIMs is also probably more or less behind us. So, to that extent, things should be fine in this basket as well. There are several other sectors. Maybe from a top-down perspective, you will not find too many great stories. However, individual names will still offer better growth compared to overall average market growth.Within the chemical segment, we continue to like specialty chemicals. That is where there is a competitive advantage on a relative basis even in the global market for Indian manufacturers and some of the companies have delivered on the quality, on the innovation in terms of newer molecules, etc. We have also seen inventory destocking in certain segments of specialty chemicals over the last two years.So, the impact that it had on the volume growth as well as on the margins is possibly behind us. We are slowly seeing volume growth coming back and there are expectations of better pricing in the markets as of now. When you are looking at the sector, you should be looking at specialty chemicals and also companies where management have continued to invest in capacity over the last couple of years. That is very important. If any management has continued to expand its capacity despite the cyclical downturn that we saw in the industry, that shows that they are confident in terms of medium to long-term growth and if they are already ready with the capacities, those are the names that you need to bet on as you go out.Within banking, you need to be more bottom-up at this point of time. There are certain banks which are delivering on growth as well as asset quality. There are certain other names which are finding some headwinds on either asset quality or on the growth, that is where you need to look and also keep valuation in mind.While the banking and financial sector has outperformed in the last six to nine months, it is no longer very attractive in terms of valuations. We have seen some absolute performance as well as relative performance from this basket. So, to that extent, we need to keep all of this in mind and as we discussed in the earlier part of the show as well, this is unlikely to be a season where you will see too much growth across segments and businesses. So, to that extent, you need to be careful in terms of what valuation you are paying for some of these names and how resilient the earnings growth would be as you go ahead.Clearly, macro tailwinds are there for consumption and we need to see which of those baskets are likely to see tailwinds from tax cuts, inflation going down, EMI hit going down for consumers, and more. Within the overall consumption basket, we think that discretionary consumption will still continue to be better than staples, that is our view at this point of time until we see a full-fledged recovery from the rural economy which could be a couple of quarters away in our opinion.As far as discretionary consumption is concerned, you need to look at some of the sectors which from an AMFI sectoral basis or from a market perception perspective, may be classified into other sectors, but they are essentially consumer discretionary segments such as hotels, travel, tourism, aviation and even quick commerce in our view is likely to do well.These are some pockets of consumption which we are very positive on. As far as FMCG is concerned, we would probably wait for a little more clues in terms of how volume growth is likely to pick up. The valuations are not so cheap while the stocks may not have done much in the last couple of years, even the earnings have not moved anywhere.So, to that extent, the valuations have not really changed for this basket. We would wait for a little more clarity on that side and on the white goods and other consumer discretionary including autos, the volume growth seems to be a question mark at this point of time. We would wait for probably lower levels to really look at them.