An above-average monsoon will benefit cement players, who derive a significant portion of their revenues from rural housing, says the founder and fund manager of Green Portfolio.
Divam Sharma of Green Portfolio does not like a defensive mentality. In fact, he told Moneycontrol in an interview, “We are investing in stocks that will potentially give 2-3x returns from these levels. These are telecom equipment manufacturers, chemicals players, and pharma.”
Further, of the 36 listed cement companies in India, the founder and fund manager of Green Portfolio said he found two that were attractively valued.
On macro events, the chartered accountant, who has over 13 years of experience in investment management in the stock markets, feels the expectation of a fed rate cut has been pushed back. “Contrary to popular belief, the possibility of a rate cut later this year is vanishing.”
What is your reading on the corporate earnings announced so far? Have you seen surprising earnings from any sector or stock?
Yes, the chemical sector is picking up. One of the most prominent players in the industry has posted 12 percent quarter-on-quarter revenue growth. This may not seem significant at first, but it shows the industry is bottoming out.
Secondly, IT has been a disappointment compared to market expectations. Even though the total contract value figures for the top players were in line with expectations, the forward guidance isn’t up to the mark.
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Private banks have been surprisingly able to hold onto their net-interest-margins (NIM). Given the high demand for deposits from banks, we expected NIMs to contract, which wasn’t the case.
Which are the sectors that will defend your portfolio from here on and why?
We are not having a defensive mentality. In fact, we are investing in stocks that will potentially give 2-3x returns from these levels. These are telecom equipment manufacturers, chemicals players, and pharma.
The chemical industry is coming from a 15-year low, as mentioned to us by the promoter of a leading firm, and they are seeing green shoots. Demand and prices of certain chemicals are picking up too.
There are around 36 listed cement companies in India of which we find two attractively valued. Despite the industry as a whole trading at high valuations, we are building up positions in a smallcap player.
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Have you changed your fed rate cut expectations after the release of several economic data points?
Yes. Even though we don’t position our portfolio based on short-term macro events, the expectation of a rate cut has been pushed back. Contrary to popular belief, the possibility of a rate cut later this year is vanishing. If you see the wage growth and employment data coming out of the US, this is in no way an economy that can tolerate a rate cut.
The forward looking inflation expectation for the next one year is 5.3 percent, which is even greater than India’s.
Do you expect robust growth across the banking sector in FY25?
Mainly, two factors will drive banking sector growth: credit growth and NIMs.
The only green shoot we foresee for banking is nominal credit growth coupled with stable NIMs. Nonetheless, the banking sector has really run up. We wouldn’t be overweight on banking for FY25 given where the valuations are at this very moment.
Do you see any structural headwinds for the technology sector from AI in the coming couple of years?
There are no pure play AI stocks in India and that’s the hard truth. Many IT companies, especially tier-2 IT companies, have been labelled as a proxy for the AI boom among investors. Yes, even though IT players are leaning into generative AI and clocking in revenues, the contribution to the overall topline from these divisions would be below 2 percent.
Now, to answer your question, there will be no immediate impact as Indian IT players are more than just monotonous operators. They are adding value in different spheres and this will continue.
Have you started taking exposure to rural plays given the expectations of a normal monsoon this year?
An above-average monsoon should benefit cement players, who derive a significant portion of their revenues from rural housing.
The FMCG sector, which benefits from rural demand, is not a sector we are inclined towards. As for auto and auto component manufacturers, we are still underweight.
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