Worst for Dalal Street now that FIIs return, bet on auto sector and private banks | INTERVIEW

The worst in terms of foreign institutional investor (FII) sales and the outlook for inflation now appears to be over, said Sachin Shah, Fund Manager, Emkay Investment Managers in an interview with Kshitij Bhargava of FinancialExpress.com. Furthermore, Sachin Shah believes that the earnings season except for the oil and gas sector has not been too bad. He foresees some risks ahead, but remains largely optimistic about the trajectory charted by the stock markets. Here are the edited excerpts.

Inflation seems to be down and FII buying is the only way back up for Dalal Street?

We’ve been saying this for over two months now that the worst of inflation clearly seems to be behind us (most commodity prices cooling by more than 20% to 40%) and by early July we had demonstrated with the data FII that even there the intensity of the sale is behind us. The net purchase from January 19 to March 21 was Rs 3.31 lac crores, while the net sale from April 21 to June 22 is Rs 2.56 lac crores. The worst seems to be over.

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So now that the two big challenges, inflation and heavy FII selling are behind us, along with very decent Q1FY23 results for most sectors, that probably gives reason for a decent sustainable rebound over the next few month.

Earnings season is almost behind us now, what’s your take on large cap earnings?

Clearly, the results were much better than feared so much for an expected drop in profits after the results. In fact, excluding a few large companies in the oil and gas sector, earnings estimates should remain largely unchanged. The most interesting part of the results was that there was no major evidence of an impact on overall demand and secondly, despite some impact on gross margins (due to the high cost of RM), most of companies had managed to maintain operating margins through internal cost savings.

What are the immediate risks according to you?

We are hearing some slowdown in very selective pockets such as construction materials, logistics and exports, but for now the hope is that most of it is very seasonal and should rebound during the festival season over the next few months. next 2-3 months. The other challenge could come from geopolitical developments, Sino-American tensions. The third concern relates to the Chinese slowdown, its magnitude and its impact.

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What sectors should investors bet on?

We believe the outlook for the Indian economy is on solid footing, especially now that runaway commodity inflation appears to have picked up significantly. From this point of view, we believe that the automotive and automotive auxiliary sector, private sector banks, logistics and the telecommunications sector should do very well. Even for industries, which are more export oriented and where Indian entrepreneurs have proven the capabilities of Indian cos in sectors such as IT Services, Specialty Chemicals, Pharmaceuticals (CRAMS), Industrial Machinery, textiles and recently electronics, there is a decent amount of orders to capable companies. .