According to Divam Sharma of Green Portfolio, the market is a little overvalued as indexes reached an all-time high after a constant bull run. But he believes strong earnings growth and prospects backed by order books and capacity expansion make Indian stocks still lucrative.
After Q1 FY25 earnings, he said the recent correction in the defence sector has pushed it into a lucrative sector, and the telecom sector remains on the top of his list.
“We do like the new age and digitisation theme as this showcases the confidence of the companies to go public and raise funds but we still refrain from investing in them due to valuations,” said the Founder and Fund Manager at Green Portfolio, who is currently managing an AUM of over Rs 650 crore and AUA of Rs 350 crore with more than 15 years of experience.
Are the FIIs worried about valuation?
We are witnessing a net outflow position for FIIs worth Rs 30,000 crore and a net inflow position as far as DIIs are concerned i.e., Rs 49,000 crore in the current month. The DIIs have yet again beaten their FII peers in buying Indian Equities. This is fueled by the high SIP inflow which is around Rs 15,000 crore per month. The inflow can be attributed to the massive liquidity that is there in the markets. If we talk about fundamentals, companies have fared well in the first quarter of FY25 and we see the liquidity increasing, if anything else.
Where do you see the value (among sectors), although valuations remain high in Indian equities?
India Inc just got done with its Quarter 1 results for FY25 and they were a mixed bag. Most of the sectors except a few like Chemicals, saw a rally last year driven by strong economic growth and market expectations but now is the time to see if the growth is sustainable. We feel most of the upsides of any company, be it capex, or be it revenue growth expectations have already been priced in. The recent correction in the Defense Sector has pushed it into a lucrative sector. The telecom sector remains at the top of our list. As a fund house, we do not invest in sectors or themes, we invest in stocks, stocks that have the potential to become stories of tomorrow.
Are you bullish on the real estate space, which is important for domestic capital formation?
Real Estate runs in cycles. We have seen prices of real estate, especially in Tier 1 cities grow multifold and residential properties becoming unaffordable. If you look at the BSE Realty Index, It has yet not reached 2007 levels of 13,400. We recently interviewed a few infra companies. Everyone thought that the prices had gone up due to high construction costs being one and demand led by consumerism. Easy access to capital is another factor. We all say India is next to China in terms of Infrastructure. But we all know what is happening with China. Right now, growth is fueled by an infrastructure boost but it is not backed by fundamentals, it can lead to oversupply and not enough demand in the future.
Do you like the new age & digitisation theme?
Yes, we do like the new age and digitisation theme as this showcases the confidence of the companies to go public and raise funds but we still refrain from investing in them due to valuations. The companies simply do not fit our fundamental philosophy. We invest in small and mid-cap stocks that have the potential to become large caps of tomorrow.
Are IT stocks at the beginning of a new upward journey?
Q1 FY25 results of large IT companies were roughly aligned with the expectations with a few mid-tier companies giving positive commentary. Companies are finally benefitting as they see large deals bagged last year materializing. The Indian IT industry is still highly dependent on the West and it is seen as an outsourcing hub. US Presidential Elections 2024 and rate cuts by the Fed can act as trigger points for the industry.
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