Bearish global sentiment may drive modest returns for Indian equities: Siddharth Vora, Prabhudas Lilladher

India offers one of the best investment opportunities among the developed and emerging markets given that valuations have turned reasonable. However, the prevailing bearish global sentiment is likely to result in modest returns near term, says Siddharth Vora, head - investment strategy and fund manager – PMS at Prabhudas Lilladher.

A spillover of global recessionary pressures slowing down growth in India is a key downside risk, as this would kickstart earnings estimates downgrade cycle, Vora said in an interview to ETMarkets . Edited excerpts:

The new Samvat year is about to begin. What is going to help India sustain its premium over peers?
I am positive on the broader market given the improving balance sheet of corporate India and robust macro indicators that suggest a strong domestic economic recovery.

Given the recessionary fears, commodity prices are cooling off and could reduce inflationary pressures.

Today, India offers one of the best investment opportunities among the developed and emerging markets given valuations have turned reasonable amid a strong economic growth outlook, driven by government efforts to promote manufacturing and investment in public infrastructure.

After establishing its leadership in global IT service exports, India can emerge as an important global manufacturing hub on the back of emerging themes such as China + 1 and Europe + 1.

Also supporting our bullish view is sustained domestic money flows into equities and a possible reversal of FII selling in the coming quarters.

In that case, where do you see Nifty and Sensex by the next Diwali?
I believe in the India story and that the domestic market would retain a positive bias, thereby retaining its pole position among emerging markets. However, we are cautious to maintain modest return expectations given the bearish global sentiment.


So, are you seeing downside risks for Indian equities?
Some of the downside risks that I foresee include a depreciating rupee, global central banks’ continued hawkish stance on rates, sticky inflation, quantitative tightening, and unabating Ukraine-Russia tensions, all of which are key negatives for the markets.

Another key downside risk could emanate from the spillover of global recessionary pressures slowing down growth in India - thereby starting an earnings estimates downgrade cycle.

But can you list five stocks that are high on your conviction list for the next one year? Please give the rationale as well
Lemon Tree Hotels is one of our high conviction bets. The hotel industry is witnessing a cyclical recovery in occupancy and ARR (average room rate) after a silent period of ~2 years, owing to COVID. We have built a large concentrated position of 8% in Lemon Tree. The stock has already given 20-25% returns in 3 months since our purchase.

Gujarat Fluorochemicals is another stock in our portfolio. We have owned this stock from a price of Rs 580 to today’s price of Rs 4,000, and have not sold despite the sharp price move due to our high conviction. We expect the strong earnings momentum and improving margin/RoE trajectory to continue.

Then comes Bharti Airtel. After gaining market share in the past 2-2.5 years, Bharti Airtel now has strong momentum in India with improving ARPUs (average revenue per user). We remain positive on the stock and continue to carry a large overweight position, despite the sharp 20% returns that the stock has delivered in 3 months.

Titan is another big bet. We bought the stock with markets negotiating the triple whammy of slowing growth in the economy, buoyant crude/commodity prices impacting margins, and an ascending rate cycle leading to increased capital costs.

Titan is the best growth franchise in India with the deepest entry barriers. The stock has moved from Rs 1,900 to Rs 2,600 in the past 3 months with strong business momentum leading to a sharp upward revision in earnings estimates.

The stock had corrected nearly ~20% from its highs of Rs. 2700 when we bought it, giving us an added margin of safety.

The fifth bet is Motherson Sumi Wiring. The company demerged from Motherson at the end of March 2022. Due to this, the stock was not in any benchmarks like NSE 500, leading to several holders being forced to sell. We took an opportune bet in this special situation.

Even though the stock has seen a sharp up move from 70 to 90 in 3 months, we continue to ride this high compounding idea.


Which sectors according to you are likely to underperform over the next one year and why?
Being a long-only equity PMS, the endeavour is to identify and invest in sectors that will outperform, while consciously eliminating sectors which are less likely to outperform - either due to growth or valuation concerns.

According to me, sectors that are less likely to outperform are consumer staples, metals, and automobiles.


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