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    Market’s a story of two halves in 2023, banks in spotlight in H1: Amisha Vora

    Synopsis

    “The second half will be equally important. We will have to review whether there is any pivot from the central banks as far as interest rates are concerned, any review on the war situation and then we should take our stance. The market broadly will be range-bound and some of the existing themes will continue to do better.”

    Amisha Vora-1200ETMarkets.com
    “It will be a story of two halves for markets. In the first half, the themes that were running in the second half of 2022 will continue to run which means that the overweight in terms of portfolio will continue to be banking and for a medium term, it will be banking versus NBFCs,” says Amisha Vora, CMD, Prabhudas Lilladher.

    The way all the fundamental factors are lined up right now – GST collection, earnings, macro issues etc – what would be your focus in 2023? Would the focus be to generate good alpha or do you expect a moderately positive year or could it be a challenging year?
    In all likelihood and in my understanding, it will be the story of two halves for markets. In the first half, I feel that the themes that were running in the second half of 2022 will continue to run which means that the overweight in terms of portfolio will continue to be banking and for a medium term, it will be banking versus NBFCs.

    The NBFC decade was the last decade. Now will be the time for banking and within that, some of the private sector banks which have been underperforming like HDFC Bank should do well. I think that the PSU bank should also do well but beyond that, some of the other continuing themes will be manufacturing and within that, defence will be the first place where I see growth. The growth is protected because it is not driven by any of the other recessionary trends which are there globally plus they are not interest rate sensitive.

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    The visibility of growth within defence is very good and that theme will continue. Similarly, whether it is railways or other infrastructure or manufacturing, that theme will also continue. One divergence which will show up is that instead of consumer durables, safety will have to be taken from FMCG which are more or less essential and so the demand will be reasonably better and recessionary trends will be felt less.

    Plus they will have tailwinds of pricing pressure on cost or cost push pressures coming down. So my broad thesis of the market is that it will be a story of two halves and the second half will be also equally important. We will have to review whether there is any pivot from the central banks as far as interest rates are concerned, any review on the war situation and then we should take our stance. The market broadly will be range-bound and some of the existing themes will continue to do better.

    Let me come to manufacturing. What are the top stocks you like in the defence space?
    Defence officially is not under our coverage but the understanding of the sector that we have developed is that in a lot of places, the order inflow has either materialised like BDL and HAL and still a lot of orders are in pipeline. Programmes have been chopped out and once it is chopped out, a lot of time the order continues to keep flowing at a particular momentum. So top picks will continue to be on one side the Mazagon Dock and GREC. In BDL and HAL, the visibility of implementation will be still away, the visibility of order book is phenomenal and one common name will be BEL, where it is electronic driven and more continuous.

    So the defence space is mapped out across segments and we feel that all segments will continue to have good visibility. There are certain private players like Bharat Forge which will also receive very good orders but in their overall kitty, to make a needle to move will take some more time. It is the same for L&T. The overall kitty is so big that while the defence business will show substantial growth, in overall numbers, it will still take time to reflect in a big way.

    Last time we talked, you spoke highly of Ashok Leyland. Auto sales numbers have shown 45% growth and commercial vehicles (CVs) has emerged as the strongest area. Do you still bet on Leyland? Also apart from Leyland, do you also recommend betting on a Chola or any other CV financier?
    I feel that with improving road infrastructure, improving emphasis on infrastructure spending and the sustainable 6% kind of GDP growth which is good in terms of where the world is heading, CVs have to be played with CVs and not by proxies. CVs capture the economies of scale and CV financing NBFCs do not have economies of scale.

    The headwinds of their business model are different from Ashok Leyland where every rising number, economies of scale sets in apart from the fact that last year I am sure they had a lot of commodity headwinds. If they have settled, there will be a margin leg up. As per our analyst, the numbers change will be from about Rs 250 crore profit to say Rs 750-850 crore kind of a profit in two years that is 2024-2025.

    My personal belief is that this cycle will last even beyond 2025 because the cycle generally will last till four to five years and the scale will be better than what we were in the last cycle. There is enough headroom for the numbers to keep growing over next two to three years.

    For 2023, you must have done some stock picking from the broader market for your clients. The smallcaps in particular have underperformed this year. Do you see that coming back?
    I would be very selective in smallcaps because there is less money chasing the stocks plus the interest rate regime. In a falling interest rate regime, safety is generally seen in large to midcaps. Smallcaps have underperformeded and that is where they have created a space in term of valuations gap.

    The other thing which is going in favour of smallcaps is that I do not see markets crashing nor do I see markets going hugely up. So a range-bound market is always a stock picker’s delight. So when stocks move selectively, some of the small caps also would move but I do not see smallcap index doing much better than the overall markets which I still think is a little away. But having said that, I would still say that from a stock-picking perspective, overall the PSU pack has been moving in the last six months – be it PSU banks, be it railways, be it defence. One space which has completely not moved is the oil and gas distribution space marketing space because they were running negative marketing margins and that scene has changed.

    Delta in terms of profits for example some of the large players like HPCL will be from a loss of Rs 2,000-2,500 crore to a profit of almost Rs 5,000-6,000 crore and having gone through that hump of extreme negative marketing margins, there is very little to lose in these names particularly HPCL because their marketing is larger than refining. Some of these stocks also will give very good returns.

    Secondly, within the banking space, in the last two years, we have been betting very heavily on ICICI Bank and that has done well. I am sure on a fundamental basis they will continue to do very well. It has almost rerated so we will get growth but not rerating vis-à-vis HDFC Bank, which because of the merger, because of the key change in management, has derated.

    If the growth momentum continues and if MSCI changes happens the way we are looking at it, I see HDFC Bank stealing a march and probably it has the scope of bouncing back in terms of rerating a bit. So, we get growth plus rerating and these are some of the largecap differentiated names apart from consumer durables to FMCG. So HUL and also the core theme of manufacturing to continue to play out.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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