Elections are around the corner and results of 5 States will set the tone for the upcoming general elections and can make markets nervous in the short term, says Divam Sharma.
“We are seeing very encouraging results from the pharma space. We remain bullish on pharma as margins continue to expand,” Divam Sharma, Founder of Green Portfolio said in an interview with Moneycontrol.
Cement, steel and 5G are the other areas he is keen on. In all these sectors, “we are actively allocating,” he says.
The Chartered Accountant with over 13 years of experience in investment management in stock markets says he is underweight on IT. “The commentary leads us to believe there is more stress coming their way over the coming quarters.”
Q: After severe correction, do you think the worst is over for the market with pricing in most of the expected negativity-related geopolitical tension and bond yields or another 500 points on the Nifty can’t be ruled out before Diwali?
No, there could be more volatility with geopolitical uncertainty around Israel and Gaza and the possibility of more countries joining the conflict. The high-yield environment is going to be sustained for a long with no probability of a rate cut before the second half of CY24-25.
Elections are around the corner and results of 5 States will set the tone for the upcoming general elections and can make markets nervous in the short term. Moreover, FII’s are still withdrawing. Markets have recently witnessed a downturn owing to some of these factors and we can expect more volatility in the coming weeks.
Q: After the rally since the start of the current financial year, do you think the market seems to have given a good buying opportunity for participants who missed the past rally or should they wait for some more time?
Valuations of the broader market have waned severely and we are seeing more opportunities than in August. A point of emphasis, we are seeing many new IPOs on the street, may it be on the main board or in the SME category where some interesting business models are coming and leaving some valuation cushion.
It’s time to be stock-specific and refrain from leveraging. Taking advantage of these market falls is essential to build a strong portfolio. Allocations can be made gradually over the next 3 months for those who have been sitting on the sidelines during the last rally.
Q: With the significant fall from record highs, what are the sectors looking attractive for investment?
We are seeing very encouraging results from the Pharma space and this is something I had spoken about earlier. We remain bullish on pharma as margins continue to expand.
Cement, steel and 5G are the other areas we are keen on. We are continuing to see significant public capex and private capex has also kicked in. China Plus One and PLI theme continue to attract our focus. In all the sectors I mentioned, we are actively allocating.
Q: Most of the experts do not see any change in the fed funds rate in the November policy meeting. Are you in the same camp? What do you expect from the commentary?
Inflation has cooled down while the labour market remains strong and GDP is expanding. The effect of recent geopolitical events will have a lagged effect on policy statements. Yes, we are in the same camp.
We expect steady rates until the second half of 2024. These prolonged high interest rates can keep some high-leveraged companies and global banks nervous.
Q: Do you think Nifty IT will be the frontrunner by next Diwali?
We are underweight when it comes to IT. The US and EU are slowing down and major revenue contributors are deferring their orders. We expected a slight recovery during this time, but the commentary leads us to believe there is more stress coming their way over the coming quarters.
Q: The majority of leading names (barring a few) released their September quarter earnings scorecard. What is your take on the results?
It’s been a sector-specific earnings season. For most of the companies we are investing in, there was noticeable margin expansion, however, volume growth has been muted. Margin expansion came mainly from raw material price correction. We have seen good order and business visibility in our portfolio companies. Some companies are seeing capacity additions.
Q: Have you changed your view for the second half of FY24 expectations, especially after September quarter earnings?
We have not changed our expectations for the second half. We will be seeing private capex shoot up this year led by volume stability and margin improvement. Domestic macros, festive spending, election and World Cup spending will trigger domestic demand.
Q: What are the most important things you consider before building or churning your portfolios as your most of small cases have given healthy double-digit returns?
Corporate governance is the biggest green or red flag. This is what we mostly focus on while analysing a company.
We look at the comfort and cushion of valuations and a disciplined approach for allocations and booking profits.
Keeping our portfolios well diversified across stocks and sectors has helped us perform under various market conditions.
We keep a close track of our portfolio companies following a scuttlebutt approach and do not shy away from churning the stock if we find any red flags.
We call ourselves radar stock pickers and our intent is to pick high-potential growth and low valuation stocks before they come to the attention of large funds.
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