Earnings Growth Likely To Lag For Rest Of Current Fiscal, Says Axis' Shreyash Devalkar
While Devalkar expects consolidation to be more stock-specific, his advice is to allocate a higher proportion to small caps and try to outbid the market.
The overall growth trajectory across sectors is expected to slow down in the remaining quarters of the current financial year, according to Shreyash Devalkar, head of equity at Axis Asset Management Co.
While speaking to NDTV Profit, Devalkar highlighted that the market has been struggling with sluggish topline growth across the board but saw some recovery due to higher margins.
"Now we are entering the quarters where the base effect of margin expansion is expected to fail slightly. Overall earnings growth for the market is expected to be lower," he said.
Devalkar noted that valuations across sectors are high. “In the last 4–6 months, markets moved to perceived cheaper segments like IT, pharma and FMCG as such. However, there is also the earnings growth, which is not that great and we have seen rerating in those stocks,” he added.
The analyst projected that the markets are headed towards consolidation. “All in all, the observation is that large caps are cheap but with lesser growth. Mid and small caps are way expensive but with better growth. In that context, in such a market, we have seen that historically it leads to consolidation in the market. This pattern has been observed in the market over the past 3–4 months,” he said.
Devalkar, however, highlighted that the consolidation will be more stock-specific. He advised to “just try to allocate a higher proportion to small caps and try to outbid the market per se.”
On his approach to the companies operating in the energy and cement business, Devalkar noted, "If you go back in the last decade, there used to be some write-offs by banks that used to take market earnings down. There used to be the commodity sector, which used to take the earnings growth down. So this time it is cement, metals and energy (space). As an investor, what we tend to look at is where there is high earning volatility and lower earning growth."
According to him, the cement business experienced temporary slowness due to the monsoon and election. "The long-term growth we see for this sector (cement) is also in the mid to high teens. The major part that is happening in this sector is consolidation, which is slow but is underway and one should look at this sector from that point of view and that’s where there is an opportunity in this sector," the analyst added.
On the sectors that Axis AMC is underweight on, Devalkar mentioned financial lenders, metal, and mining.
