What sectors are going to have their day in the sun right now? Mihir Vora answers

Time of India

6 days ago

Mihir Vora
,
CIO,
Trust MF
,
says
government spending
continues to drive visibility in infrastructure, power, telecom, and defense sectors. Rural financing, particularly microfinance and small gold loans, shows promise due to government investment and economic recovery. While large-cap, FMCG, and IT sectors are avoided, domestic segments and consumer discretionary items, especially AC stocks, present selective value opportunities.
There are earnings, there are tariffs and there are lots of moving parts to address in the market right now. Amid all of these factors that are at play, how are you viewing the market right now and where do you think we can still find some value?
Mihir Vora
: I would say the market is in a wait-and-watch mode because after the sharp correction in the first quarter, we have recovered very smartly, and we have recovered in spite of all the domestic and global events like tariffs, the border situation, etc. So, there are lots of moving parts and the market has sustained very well against all those odds. Now, we are at a stage where both the negatives and the positives are evenly balanced and evenly priced in and going forward, we will have to look forward to our own domestic fundamental growth which is something that we are very closely observing.
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For example, there are mixed signals on the growth side. There are pockets of recovery, but there are also pockets where there is persistent weakness. So, the results season and the guidance that the companies give, as well as the next few data points on growth, especially credit growth are something that we are looking forward to now.
At the same time, talking about the earning season, there were expectations from the IT basket. After TCS came up with the numbers, other IT majors will be coming up with their numbers, but the expectations are high for banks and financials. What is your take on the earning season? Will it be the banks and financials or the consumption bucket that will give the next direction to the market?
Mihir Vora:
As far as the large banks are concerned, we do not have extremely positive signals yet because a key variable, credit growth, is still tepid. Within banks and financials, we would look at the NBFCs, especially the retailing NBFCs which have a relatively higher proportion of a fixed rate book because funding cost is going to come down for everybody, but in the case of banks, a lot of the loans are floating rate so the asset repricing also happens a bit faster. Whereas for NBFCs, which have a fixed rate kind of a book, the asset repricing happens over a period of time.
So, I would say that retail NBFCs, certain pockets of banks which are in niche segments like MSME or retail or gold or even microfinance, might show better margins and better growth. We have to be picky and choosy. Having said that, the markets cannot do well and the economy cannot do well unless the large banks kick off and in that case, the valuations are attractive for most of the large banks. No issues, balance sheet settling, but the only thing we need to watch out for is growth and right now, the default case is that the second half after the monsoons should see a pickup in growth and that is what we would start positioning ourselves for.
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In terms of a portfolio strategy right now, what is it that you are doing given that there are so many unknowns like we just talked about which are still up in the air, do you think doing nothing is the best strategy right now?
Mihir Vora:
Absolutely, as I said, since we are in a wait-and-watch mode, the market is in a consolidation mode because we do not have the absolute downside in valuations. Valuations are fair, probably a little above average. So, it is not like there are extremely cheap valuations to start with and at normal rates, you would need earnings to come back to normal rates. My guess is that it is going to be a
stock pickers' market
.
For midcaps and smallcaps, at least from the last quarter's numbers, look to have a far better story out there and the sheer number of stocks is much larger in the mid and smallcap segment. Probably, in the next few months, it will be a very subsector specific, stock specific market.
What sectors are going to find their day in the sun right now?
Mihir Vora:
The sectors in which there is visibility are still linked to government spending. The government spending does not seem to have come off. So, to that extent we will see that infra push, the power, telecom, defence push continue and we should see news flow in this segment to continue. So that is one segment where relatively speaking there is better visibility.
In the retail financing space, there seems to be better visibility. Some pockets of rural financing like microfinance might be a play now because valuations have corrected, the government is spending a lot on the rural economy. The rural economy seems to be on the healing path so to say and microfinance is a direct beneficiary of that.
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So, microfinance and small gold loans segments can continue to do well. We might see some base effect in a lot of the capital good stocks because last year was a low base year and so that is a positive. There will be some base effect in the metals piece so there might be some pockets of value out there. It is really very picky and choosy. We are structurally underweight on largecap because as we discussed, it is a single-digit growth rate kind of an environment, for guidance also it is more or less according to that single digit, not very exciting.
FMCG growth again is not very exciting. IT, FMCG, low growth utilities are the segments which we avoid. We are more positive on the domestic segments. Hopefully, consumer discretionary should also come back. Stocks have corrected a lot. Some of the AC stocks have corrected. They might offer some pockets of value. We are being choosy and picky about where the growth pockets are.
Government spending as a theme is something you are liking at the moment but another theme that we are seeing showing some value right now is domestic demand focused themes in stocks, given the kind of tariff overhang that we have and we are in the wait and watch mode right now. What is your take on this entire domestic demand focused theme and some stocks that are servicing that theme? What do you like about this theme?
Mihir Vora
: Rural recovery is a theme. I would still wait for some more data points. It is still tentative. I would not say it is a full-blown recovery. It's the same for urban areas. We are getting mixed data points on urban unemployment. The visibility in consumption is still in the premium consumption category. So, wherever there is premiumisation or premium consumption, those categories are still showing some traction, like high-end retailing or jewellery or eating out and there it is a little more or less elastic, but in general, the lower-end consumption is still a question mark.