The only topic of discussion right now is on stocks to bet on for 2023. If not stocks, what sectors do you recommend will hold good next year?
As we have said in the recent past, we still like domestic theme stocks more than the global theme stocks and there our top pick remains the financials. We believe financials are in a very good space in terms of their overall positioning – be it valuations or earnings. Also the credit growth is likely to remain strong. The NPAs are likely to remain controlled and at the same time, banks will have tailwinds in terms of margin expansion, maybe for another quarter or two before we see them peaking out. I believe financials will be my pick for calendar 2023 as one of the key sectors.
When everybody is excited about a sector, don’t you think the best is already getting priced in?
Not necessary at all points in time because we have to see where it is in terms of the earnings compounding which a stock/sector can show and where are the valuations. On both these counts, financials are very well placed, even though they may be over owned by different pockets.
But let us remember that FIIs have been sellers in bulk of this calendar and financials is where they have sold positions. So, if they return to the market, in some way they can clearly add to this sector in a significant manner over the next calendar.
This entire return to value, whether it is PSU banks or PSU defence companies and some would also argue PSU metal and energy names, everything has been a massive rerating candidate. It is no longer of deep value but it is still value. How do you see PSU/value space moving in 2023?
I guess 2022 was a year where most of these stocks rallied based on the valuations, irrespective of how their fundamentals look like. 2023 will be the year where we will have to start picking out stocks within this basket and which still have secular trends in their favour and which are likely to do well over a longer period of time and compound their earnings rather than simply looking at the valuations and trying to pick those stocks.
Also, what is your take regarding the entire defence space? Mazagon Dock, all have seen quite a bit of spurt in trade today and the entire space has become investible for mutual funds, which was not really the case till last year. We didn’t use to see that much participation. Do you expect this trend to continue?
I believe the earnings for the defence based stocks will remain good because we can clearly see the government’s focus on more and more indigenisation. So more and more production is likely to move onshore. We are likely to start making newer things which we are perhaps not making today. So from that perspective, clearly the sector is very well poised and as you mentioned, given that there was a time a year-year and a half back, when ESG concerns were paramount and a lot of people did not want to touch defence stocks, from there, we have come to a point wherein we see that some of the defence stocks are not so much of an ESG concern and thus are attracting new set of investors. I believe that is a good space to be in from a long-term perspective.