Private sector banks, the consumer stocks as well as the capex plays are what would drive this rally, says Hemang Jani, Senior Vice President, Sharekhan. Excerpts from an interview with ETNOW.
Nifty is up 8.5% post the tax cut. If I look at the consensus earnings estimates from Morgan, Goldman Sachs and UBS, Nifty earnings upgrade are in the 7-8% range. Can I say that fundamentally the best part of the rally is now behind us? If markets go higher now, it will be on momentum and liquidity?We have majorly underperformed our own markets post budget, particularly even year till date and whatever upside of 8% that we have seen is taking care of that part. Now in terms of the overall impact, we would not just see the earnings upgrades, because of the kind of tax cuts that we have seen, typically these kind of events change the sentiment and the earnings dynamics for a long period of time.
The market would start factoring in the overall earnings trajectory, where we had not seen any growth for almost about three to four years, to a much higher earnings growth trajectory for next three to four years. It would also be a combination of the PE re-rating that we may witness. I do not think we should be looking at this as a small event. This is a game changer and this could bring about a big bull cycle over the next three to four years
What is catching your eye, what is looking interesting at this point?There are three pillars of this possible rally that we are witnessing right now. First is the banks, the entire private sector banks pack where one is really looking at the significant re-rating and growth because of the lower base and the market share gains, etc.
The second is the consumer names — right from Britannia to HUL and whole host of companies where there is going to be a major re-rating because of the tax impact and better sentiment.
Third, the players which would be the beneficiaries of the possible capex revival which we all have been waiting for a long time. So the story around L&T and other equipment players would gather momentum. These are the three key pillars of the possible rally that we are going to see over the next three to four years.
But the big debate is whether you buy afresh right now and would the capex investment side of the economy now be more lucrative in terms of investment as opposed to consumption?This kind of big rally would always leave a certain amount of doubts in the minds of investors on whether they should participate now. But looking at the kind of upside we see now, it would not be sensible to try and time it or wait for some kind of a correction. In that case, you might miss out on a very big upside over a period of time.
Also coming to consumption versus capital goods plays, we have a broad rally where both consumption as well as the capex players would participate. Some of these capex companies’ current numbers are not looking great. So, they might look a bit stretched in terms of valuation and the actual numbers may take some time to reflect. I definitely think that we should have a basket which has enough of consumer names, enough of capital goods plays and of course the banks and some midcap companies.
If the underlying view towards government action has changed, do you think the underlying view for PSU stocks should also change because that is where value is?We should take a company by company approach, rather than taking a broader view on PSUs as a sector. The steps that have been taken may be a bit of sentiment booster but the oil marketing companies would stand to benefit.
Because of higher taxation that they are paying and the fact that there could be some sort of positive news flow in terms of the divestment, or some kind of scheme to unlock the value. there could be some rerating for select PSU companies which are doing well.
I would definitely not be too positive on the PSU banking space because a combination of tax cut or overall growth that one is looking at is not looking that impressive for the PSU banking space per se. So yes, some of the companies in the oil marketing space are looking interesting.

Source