Metals, IT, PSU Banks — These Sectors Are JM Financial’s Picks For Best Risk-Reward Balance
JM Financial MD Venkatesh Balasubramaniam suggested IT services could see strong performance next year if President-elect Donald Trump implemented his promised tax cuts.
Metals, auto ancillaries, PSU banks, internet and IT services are among the sectors currently offering the best risk-reward balance to investors, according to Venkatesh Balasubramaniam, managing director and co-head of research at JM Financial Services Ltd.
Talking to NDTV Profit, Balasubramaniam listed sectors that missed earning estimates in the second quarter of the current fiscal, but were expected to pick up.
“At this point, we like metals, internet, auto ancillaries, asset management companies. On the financial side, we like PSU banks relatively more,” he said.
Balasubramaniam suggested IT services could see strong performance next year if President-elect Donald Trump implemented his promised tax cuts, which might boost the US economy.
“While there is a fear that the H-1B visa issues would once again rear its head like in the first term, our own IT analysis suggests that at this point in time, Indian companies have hired more local talent there. Even if H-1B rejection rates go up, it will not really impact numbers or margins,” he said.
“So, we are not as negative on IT services. We are more positive on IT services if Trump actually goes through with those tax cuts,” the JM Financial MD said.
Balasubramaniam also suggested emerging sectors that investors should look out for.
“Investors should definitely look at exporters from India, which will benefit from duties on China. So there is a whole list of companies that you can evaluate. I think it is time to once again start looking at, for example, the chemical sector, which has been out of favour for the last two to three years,” he said.
The JM Financial executive highlighted that the chemical sector had seen FII inflows coming in during October as valuations came off. The sector also saw muted earnings, resulting in a low likelihood of missing estimates.
“If those (by the US) duties on China actually come through, it will relatively favour India. The supply chains in chemicals were, anyway, already moving from China to India. People should evaluate chemicals very constructively in our view,” he said.
According to Balasubramaniam, investors should also watch out for wires and cable companies and other key emerging sectors.
“They (wires and cable companies) have had disappointing numbers in the second quarter. Numbers have been cut. Valuations have become reasonable. I think people should look at that particular sector once again very closely,” he noted.
He also predicted that things would start looking up in the macro space with factors like the government spending more capex than that of the first half.
“We believe that capex could rebound in the second half, and that will percolate throughout the economy. Maybe not a strong rebound, but the glass will start filling up in the Q3 gradually, and we should see it filling up even more in the Q4,” he explained.