What are you telling your clients? How should they approach the month of January?
Hemang Jani: Well, the start appears to be pretty decent, having seen a very strong rally last year. I think the structure of the market continues to be good, whether it is the crude oil, the interest rates environment and most importantly, the earnings that we are going to see starting from today, how it pans out is something that remains to be seen. But our overall sense is that though we might see a little bit of sideways movement or a bit of a profit booking, the broad structure of the market remains good. We will have to do a little bit more hard work in terms of what are the pockets of opportunities, both in largecaps and midcaps. But there is a lot of expectation, a lot of opportunities.
Can you be specific?
Hemang Jani: This year, there are four broad categories where the earnings growth is going to be very strong. First is capital goods, about 30% kind of growth, no doubt the valuations are on the higher side. Banks is one pocket where you will see a 30% growth with the comfort on the valuations and the sector also has underperformed. Healthcare would be the third pocket where we see a very strong earnings growth of 35%. And lastly, telecom is a sector which not many people are talking about but in terms of earnings for 2024-25, it will be one of the best performing sectors. These are the four pockets we have a positive bias in terms of earnings.
What is your take on the Q3 updates we are getting from the likes of Bajaj Finance, where they have seen their overall deposit growth up 35% on year, IndusInd Bank, which has been fairly encouraging with a deposit growth of nearly 42%. What is this indicative of?
Hemang Jani: Bajaj Finance has gone through its own negative developments both from regulator and with the episode with RBL Bank in terms of credit card. Now that the business update is out, it looks pretty decent. What remains to be seen is what kind of growth one can expect this year from Bajaj Finance, given that it is trading at a very high valuation. I like the stock, I like the legacy, but the valuation being on a higher side, I would enter at a correction.
Nasdaq has fallen and Indian IT stocks have fallen, the companies are different but the pattern is always the same; would you buy, would you avoid IT given that Nasdaq is not off to a great start?
Hemang Jani: More than Nasdaq, the structure of the index and the composition of that index is very different from what we have here but the fact of the matter is that the quarterly results are not going to be anything great in terms of surprises for the IT companies. While we are not talking so much about IT as a space, the fact of the matter is that last whole year the sector has done pretty well, about 23-24% uptick from January. So I would be comfortable entering into these stocks once we have slightly more colour in terms of earnings for next year. While people hope that the growth is going to be 10-12% for largecaps and maybe 16-20% for midcaps, we want to see what managements are saying and we would avoid till there is a clarity of earnings.
Wanted to get in your take on the capex related theme, given that it is election-related. Do you think that macros will continue to remain favourable and one can look at the entire manufacturing and capex related theme favourably? Where do you sense opportunity here?
Hemang Jani: While we feel that this year again, the growth in terms of earnings at an aggregate level will be around 30%, what we should understand is that the sector has really done extremely well in the last one and a half years and the stocks have really gone up quite a bit. I would be comfortable buying into the stories where there is slightly more degree of comfort. So maybe something like L&T, Thermax, some of the defence companies, Bharat Electronics, BEML. These are the markets where we have a slightly higher degree of conviction when it comes to earnings. We will stick to those.
They were the toast of the town in 2023 – Dixon or Syrma or even Kaynes. Would you continue to ride them?
Hemang Jani: For incremental money, I would not be comfortable advocating this theme because a large part of that is positive pricing. Dixon, they have had some positive news flow around production that they can possibly get from the mobile phone and high margin categories. So if you see some 10% cut on Dixon, surely it is something that we would be comfortable looking at. But by and large, now that that theme is so very well discovered and the prices are not so cheap, Dixon is quoting at some 50-55 times. So not too comfortable putting incremental money at these levels.What does 2024 hold in store for IT top bets?
Hemang Jani: As I said, this quarterly earnings season will not have any material positive surprises and let us say in case of the large cap names, the growth will be in the range of about minus 0.5% to about 1.2% on a quarter-on-quarter basis on constant currency.
In midcaps, we will have to be slightly more stock specific as to what companies deliver because you have a Persistent System and KPIT and those names which can possibly surprise also on the earnings front. But I would be more comfortable playing this theme post results based on what kind of surprises we get in the numbers.
