ETMarkets Smart Talk: Banks, defence, real estate, cement top sectors to benefit from economic expansion: Dr. Poonam Tandon

“We remain overweight on sectors that will benefit from economic expansion such as banks, industrials, utilities, defence, real estate, and cement,” says Dr. Poonam Tandon, Chief Investment Officer at IndiaFirst Life.

In an interview with ETMarkets, Tandon said: “We are very positive on the infrastructure and real estate cycle as the sector will continue to benefit with the government allocating higher budgets and offering various incentives” Edited excerpts:

October is turning out to be a roller coaster ride for investors in equity markets. Will geopolitical concerns have a long-term impact on equity markets if things escalate?
Geopolitical pressure is on the rise amid the ongoing war between Russia and Ukraine and now the Israel-Palestine conflict.

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The geopolitical risk threatens financial stability, global trade, and cross-border capital flows due to increased risk aversion among investors.

Besides, it will also impact the commodity markets in terms of higher inflation. We feel that geopolitical ramifications are important and complex as well to understand as it can lead to a lot of volatility in the near term but in the long run geopolitical events normally don’t have a lasting impact on the markets.

More than 40 companies have announced their buyback cumulatively putting over Rs 30,000 cr on offer. TCS is the latest one. Why are buybacks becoming common — or is it one way of hiding bad news, if any?
In the last few years many companies have been announcing share buybacks, especially companies from the IT sector.

One of the key reasons is less investment opportunities and too much cash on the balance sheet. Most of the companies in the IT sector are mature businesses and do not have newer areas to invest in.

In addition, buybacks are tax-efficient means of rewarding investors over dividend payouts. We see the announcement of the buyback program as positive and not as a tool to hide any bad news given it is one of the ways to reward shareholders.Do you see any long-term implications on the commodity cycle due to geopolitical concerns?
The geopolitical concerns in the long run are transmitted through the real economy and the effect of disruptions will be seen both in the financial and commodity markets.

Increasing geopolitical risk will lead to higher commodity prices, especially for sensitive commodities such as crude oil and gold.

After the pandemic, the supply chain disruptions further escalated on account of the Russia-Ukraine war as both these countries are major producers and exporters of crude oil, gas, wheat and aluminium.

Now the conflict has emerged in the Middle East which is a sensitive region for crude oil prices. The situation is very fluid, and any escalation of war can lead to major interruption to the oil supply and in turn, impact the inflation and consumer sentiments.

SIP of more than Rs 16000 cr or $2 bn – does this excite you? This is good news for the MF industry as well as for equity markets. But as more schemes get launched every month — investors will only get confused. How should one do fund selection?
Yes, SIP flows continue to be strong despite global headwinds as the domestic economy is showing resilience. We are also seeing more NFOs being launched, especially in multi-cap, small-cap, and thematic space to plug in any gap in the product offerings.

An investor should consider various factors for selecting a fund such as fund manager experience, performance history, expense ratio, type of scheme, assets under management and investment objective.

Besides, investors should also take into account the time horizon & risk tolerance and select the fund category accordingly as markets can be very volatile in the short term.

What are your expectations from September quarter earnings?
We expect the September quarter earnings to be positive with Banks benefiting from strong loan growth and lower provisioning cost despite NIM pressure, the Auto sector reporting YoY growth due to better volumes and prices and capital goods space is expected to report strong execution and margin improvement.

Moreover, cement is likely to report strong volume growth and margin improvement while margins of commodity companies are expected to improve.

On the negative side, IT is expected to report muted numbers, however, the demand commentary will be crucial.

The FMCG sector is also likely to report low single-digit volume growth. Overall, for this quarter we expect volume growth to remain strong across domestic sectors and margin to improve due to the fall in raw material prices.

Are PSU the right place to be in – as inflation remains high and the market moves from growth stocks to value stocks?
Traditionally, PSU stocks have been underperforming for a long period and were trading below their intrinsic value despite dominant market share in many sectors – banks, defence, and commodities.

With NPA issues behind us, PSU banks are looking attractive given the balance sheet cleanup, defence space is gaining traction on a renewed focus on domestic manufacturing and commodity sector to benefit from an inflationary environment. So, a combination of improving fundamentals and cheap valuations has bought investors’ interest back in this space. We continue to stay positive on PSU companies as valuations are relatively still attractive.

How are you positioned for the rest of the year? Where is smart money moving?
We continue to stay positive on the domestic investment theme over the consumption theme led by economic recovery and continued focus on indigenisation.

We remain overweight on sectors that will benefit from economic expansion such as banks, industrials, utilities, defence, real estate, and cement.

With the World Cup on everyone’s mind — which sector/stock could be the captain or Rohit Sharma of the portfolio?
We are very positive about the infrastructure and real estate cycle as the sector will continue to benefit with the government allocating higher budgets and offering various incentives.

In addition, increasing interest from global companies to set up manufacturing facilities in India in order to diversify their supply chain from China is also positive for this space.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

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