“Higher profitability, cleaner balance sheets, and the trend of lower non-performing assets is something that makes the BFSI sector attractive,” K Joseph Thomas, Head Of Research at Emkay Wealth Management says in an interview to Moneycontrol.
With a growing economy, and faster credit growth, and a likely moderating interest rate scenario over the next two quarters, the BFSI sector holds much promise for investor portfolios, he believes.
Thomas with a rich experience of three decades in the financial markets says the stable economic and political environment make India a primarily attractive destination for global investors.
Q: Are the banks and NBFCs at the top of your buying list given the increasing profitability?
Higher profitability, cleaner balance sheets, and the trend of lower non-performing assets is something that makes the BFSI sector attractive. With a growing economy, and faster credit growth, and a likely moderating interest rate scenario over the next two quarters, the BFSI sector holds much promise for investor portfolios. Enhanced digitization and the forays into retail business, and the prospects of much better liquidity position augurs well for the sector. While these factors are relevant to profitability especially for banks, the success of NBFCs would depend to a certain extent on the efficacy with which the segments which do not have access to the normal banking system due to several issues are catered to through long term products.
The financialization of savings especially in the last one decade, the enhanced penetration of financial products including insurance, the larger number of demat accounts that are being opened, all these point towards an evolving sector which is fairly valued going by the P/Es. Therefore, there are structurally many relevant factors that make the sector a strong investment proposition.
Q: Do you think India will remain an important component in the overall Emerging Markets basket for most of global investors?
What makes India a primarily attractive destination is the stable economic and political environment. The rate of economic growth at 6.00 percent to 6.50 percent makes India the fastest growing economy in the world. This would mean one of the strongest corporate performance too.
Against this background, that is, considering the blast of the continuum of growth that is happening, the relative valuations look quite reasonable and fair. This makes the domestic market a favourable destination for overseas investors. The inflows have already started from these investors with close to $10 billion in this financial year so far. The differential returns will continue to favour the domestic markets even as tough times exist in other territories.
Q: Do you see significant rally in broader markets going ahead?
The rally will be fostered by multiple factors. The return of the overseas investors who more often focus on largecaps, and the domestic funds close to Rs 15,000 crore that get invested in equity markets from the retail investors through the mutual fund route, and the focus of this segment on investors on the midcaps and smallcaps, will ensure a broad- based advance in the markets over time.
Q: What are the key factors that supporting the current rally in equity markets? What is the possibility of Nifty ending with 15 percent gains in 2023?
Even as the Euro region is facing some growth concerns, the macroeconomic data from US such as unemployment numbers and retail sales have been healthy, leading to increasing expectations of soft landing.
The Chinese policy turning pro-growth with rate cuts too has been one of the positives. The improving sentiment and liquidity are the key factors behind the recent up move. While it would be difficult to put a number to the yearly gains, we expect markets to be broadly in line with nominal GDP growth or a shade better.
Q: Is the China factor working well for Indian markets?
Through the pandemic and after, the world has been looking for one more producing partner, and the policy support provided by the government domestically should lead to the China factor working for India.
The PLI Scheme covering multiple sectors and businesses, the accent on manufacturing and domestic production, the higher public capex at Rs 10.50 lakh crore etc. will ensure the rise of manufacturing and the provision of an effective alternate production hub to the world.
The manufacturing exports were at $410 billion in 2022, and it is set to rise further.
Q: Do you see significant earnings upgrades in Q1FY24?
The lagged effects of monetary policy tightening over the last one year and more, and the impending risks to global growth are some of the factors that we believe may be kind of a bit heavy on the earnings outlook, and thus, on upgrades.
As mentioned earlier, we expect market performance for the year to be more or less in line with nominal GDP growth.
