Market: Large-cap stocks offering reasonable value and potential earnings surprises over the next 6-12 months: Krishna Sanghavi

“In terms of sectors, physical sectors like energy, commodities, power, oil and gas look interesting for the next three to five years. Manufacturing is key to India’s growth, as it seeks self-sufficiency through import substitution and generates export potential through initiatives like PLI,” says Krishna Sanghavi, Mahindra Manulife MF.
What general market setup do you believe in right now? Markets have gone up quite a bit and everyone is talking about an imminent correction, but no one knows when or why it will happen. Any guesses?
Krishna Sanghavi: Generally speaking, market corrections are a favorite topic of discussion, but we have to look at them in terms of A) the economy and B) the market cycle over the last 5, 10, 15 years. We’ve had a lot of cases where everyone predicted a correction, but in reality we have to watch the economy first. The economy is doing pretty well, so the market is probably going to do that again. One of the positives is that the market flows are pretty supportive across the board. If there’s a concern, it could be that the flows could create a slow market or some issues. Otherwise, the economy looks good and we’re on track for the next three, five, seven years. For investors with a long-term view, it still seems like a good time to invest.
When should you invest money gradually? Many PSU sectors like railways and defence look frothy, making it difficult to find value. Are there any sectors that look better in terms of risk-reward like autos, FMCG or pharma?
Krishna Sanghavi: Sectorally, physical sectors like energy, commodities, power, oil and gas look interesting for the next three to five years. Manufacturing is key to India’s growth, as it seeks to become self-sufficient through import substitution and generate export potential through initiatives like PLI. Consumer sectors like FMCG and discretionary items are also important because as India grows, the nominal economy grows, per capita income increases and consumption increases. The journey will have its ups and downs due to valuation fluctuations in many sectors.

Earnings season is about to begin, and IT is the first large-cap company to announce results. Where do you see any room for surprises in earnings?
Krishna Sanghavi: The earnings surprise could come from the consumer economy, which has had a tough time over the past 12-18 months. The capital goods sector also has strong order fulfillment momentum, which could surprise markets. However, valuations in this space may already reflect a faster fulfillment cycle.

What about IT? Is it on the list of things to avoid, or is there a chance for a surprise, perhaps a change of comment?
Krishna Sanghavi: The change in commentary could drive IT in the near future. Given the current global economic situation, especially in the US and Europe, a big earnings surprise in the near term may be difficult. However, focusing on the medium term, macro trends in outsourcing and the way these companies have evolved remain favorable. So IT could surprise us based on management commentary and customer visibility.

What are your thoughts on production as a topic? Do you have any specific budget expectations or tactical ideas?
Krishna Sanghavi: Manufacturing is a strong theme because of India’s large demographics, which can consume a variety of products at affordable prices. India is working on import substitution and export opportunities through initiatives like PLI and Atmanirbhar Bharat. While it is not ideal to predict specific budget measures, the macroeconomic outlook remains positive, suggesting manufacturing-led growth for the next three, five or seven years.

How hard is it to find investment ideas now? SIP data recently crossed 21,000 and many fund managers are struggling to find good ideas at current valuations. Do you face similar challenges, especially in the SMID space?
Krishna Sanghavi: The challenge is that the flow of money from customer demand or buying desire is higher than the available opportunities, which leads to valuation debates. Some stocks seem to have the next three or four years of earnings factored in, making them highly valued. However, looking at the broader market, large-caps offer reasonable value and potential earnings surprises over the next 6 to 12 months. Sectors such as energy, commodities, power and manufacturing offer reasonable opportunities. Manufacturing in particular is broad, spanning autos, consumer discretionary and pharmaceuticals, providing a range of investment opportunities. Despite the current influx of funds, finding value is a bit tricky.

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