What is your view on the market itself, the start has not been the most euphoric because we have been consolidating. Do you think this is going to be the nature at least for the next few weeks or months going forward that there would be a bit of sideways move?
Siddhartha Khemka: If you look at the market view, after two consecutive months of sharp up move, Nifty moved by almost 5% in November, followed by 8% move in December. The start of the year has been a bit sombre because the market is waiting for fresh triggers. There were the meeting minutes from the Fed, which gave out some clarity as to when this Fed rate cut could happen, which has excited the market the most in December.
The quarterly results, which would start coming in and that would be the next trigger for the market. In terms of overall valuations, we see that markets are comfortable, especially the large caps. The Nifty is trading at a one-year forward PE of 19-19.5, which is still at a discount to its last 10-year average of 20 times. We see there is room for the market to move up given that quarterly results or the corporate earnings have been pretty strong and that continues to be the case. In the first half of FY24, Nifty earnings have been pretty strong.
In Q1 the earnings were about 31%, Q2 about 28% and the full year asking rate is just about 20-22%. So we believe that in the next two years, FY24-25, the nifty earnings would continue to grow at 18-20% which should drive the returns from the market. We do not expect much re-rating as we are near the mean of around 20 times. So the earnings will drive the returns and that is what we believe investors should look for.
I am looking at your picks. Four out of the 10 stocks that you have selected in your top 2024 picks are PSUs. Despite the sharp run-up that we have seen in 2023, why are you so bullish on the PSU space?
Siddhartha Khemka: What we are witnessing is that all the public sector enterprises are witnessing a strong improvement in the financials and not only the balance sheets have improved, some of them are from the core industrial space where the order book has seen a sharp improvement. And what is most important is that the return ratios are improving sharply and that is what is leading to the re-rating. To combine all, finally the valuations, if you look at most of them, they are still trading at a big discount to their private players and hence we see a lot of room for upside in the PSUs in this year.
Are you talking about like a 10% upside or could it be 20-30% as well? Most of these stocks have doubled or given a 60-70% return in the year gone by already.
Siddhartha Khemka: There is room for at least 20-25% upside. If I were to look at a case-by-case basis, if you look at Coal India, it is still trading at about 9 times on a forward PE. Look at some of the oil companies. For example, ONGC is trading at less than five times and we see a good room for upside, especially if you look at the likes of ONGC, Oil India, they are trading at around five times. The return ratios are sharply improving for ONGC from over 15-16% to 19%.
Oil India, the ROEs are improving from 9% to 16%. So definitely, there is a lot of catch-up that has happened but we believe that there is a lot of room given that the valuations are still at a discount and there is a good dividend yield also in these stocks, which gives a lot of comfort. For example, Coal India, we have a 5% dividend yield even after the stock has doubled.
