When asked about the potential value in the export sector amid ongoing trade uncertainties, Bhandarkar emphasized the importance of careful selection.”I would just say that you have to be very selective because we see that companies are faced with challenges and when they are faced with challenges, they end up looking for solutions. One of the things that we have seen especially in textiles is that a lot of companies are trying to broaden their market. If they were dependent on a particular geographic region, they are trying to base it broadly and move into other regions, that is one way,” he said.
He also mentioned the pharmaceutical and IT sectors as sectors positioned to benefit from current trends. “There are certain sectors, like pharmaceuticals, where we still have some core competency and I think that also benefits what’s happening now. And if we go back to your earlier question, IT companies themselves will evolve. Look, they’re very well-run companies with strong cash flows. Ultimately, what’s happening with AI today will end up being customers who need more AI-based solutions, and they’ll be customized for each organization or for each use case. So there’s a play. Yes, because for a short-term investor it is a bit of a challenge, but for a long-term investor I think things will be much better.”
Financial sector: credit growth and selective opportunities
On the financial services front, Bhandarkar noted that credit growth has started to pick up, providing a strong start to growth, especially for private sector banks. “We have also seen that the overconfidence of the regulators on unsecured credits, etc. has now subsided a bit. So in that sense, the growth take-off for the private banks is quite strong,” he noted. He also identified opportunities in PSU banks, especially given the potential return of capital investment from the private sector. “That also puts the PSU banks in a very strong position. I think what we have to recognize here is that barring a few exceptions here and there, the asset quality as a sector has generally been impeccable. And what we are starting to see now is that the segments that tend to be very volatile and most affected by economic downturns, etc., namely the microfinance or the small finance banks, even there there seems to be a ray of hope in terms of a bottom coming through. So on the whole, The Valuations are not very expensive right now from a historical perspective. There are opportunities and, as I said, we prefer to take a ‘basket’ approach here and play risk-reward depending on how we see the growth elements playing out in each of the names we have.” Midcaps and smallcaps: signs of profit recovery
On midcap and smallcap valuations, Bhandarkar highlighted a gradual recovery after a long period of underperformance. “The current market rally or even the move over the last few months has been very narrow and we have seen the broader indices not following as well. If I’m not mistaken, the smallcap index is performing close to 12% or a little bit more than the Nifty. Of course, there were probably good reasons for that. Valuations at some point in the middle of last year were quite high and profits have more or less collapsed last year.”
He added that recent quarterly results show a promising turnaround. “This quarter, the quarter that passed and ended on November 15, now after seven quarters, we see the Nifty 500 seeing earnings growth of over 15% year-on-year, and also on a year-on-year basis, we see smallcaps and midcaps leading the growth rates. If I’m right, the midcaps and smallcaps within the BSE 500 have grown at least 27% year-on-year and the largecaps have grown 12%. So, There seems to be some recovery here and I think small caps have taken the lead again after five quarters in a row.”
He stressed that holiday demand, which is not yet fully reflected in figures, could further strengthen the outlook. “Clearly our assessment is that the past holiday season was one of the best in the last five years and that is what we are hearing from the companies we work with. Clearly we should look for a strong earnings performance to continue into next year.”
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