Abhishek Basumallick, Founder & Chief Equity Advisor, Intelsense Capital, points to two sectors which have not been in the public limelight, chemicals and insurance. “While I am pretty bullish on insurance, chemicals sector is getting to the stage where we are probably seeing bottoming out in the businesses and things could turn around in the next 12 months,” says Basumallick.
He also points out that IT and banking may also see a turnaround but that will take longer.
Let’s discuss the market momentum right now and it is clearly favouring the small and midcaps. What do you make of the way forward because on one hand, there is always the challenge that it is probably getting towards the frothy zone as the valuations are expensive in smallcap and midcap, but the market mood is such that they clearly want to buy more of that?
Abhishek Basumallick: The point that you are making is very true as there is uncertainty in the minds of investors. But personally, I think that small and midcaps could be headed for a pre-election rally and it is going to be very interesting to see how the largecaps behave, but the next couple of months should be very interesting for the mid and smallcaps.
Elections are coming up in India as well as the US. Both are significant events for the market and could create much more than normal volatility, that is something that we need to be all aware of.
Let us get deeper into the various segments. PSUs as a pack had done really well in the last 12 to 14 months, especially the likes of power, OMCs, financiers, defence, rails, etc, not to forget the public sector banks. What is the next 12 months crystal gazing telling you about the PSU sector as a whole?
Abhishek Basumallick: I don’t really look at PSUs as a separate basket. The only thing common about PSUs is their parentage, the fact that they are owned by the government. But other than that, PSUs belong to different industries, different sectors. Each sector has its own dynamics. Each company has its own dynamics. So, if I look at, say, a railways company versus a defence or infra, there is definite tailwind in these segments and companies which are large, are either monopolies or very large duopolies in some of these sectors or specific industries and will definitely continue to do well.
So, I do not want to bracket specifically that PSUs are going to do something different, but overall, there is definitely going to be a lot of focus on some of these manufacturing, infrastructure, engineering, the core sector if I may call it and focus on businesses in and around those core sectors.
Infrastructure has become a very large theme in the sense that there is electronics manufacturing, auto manufacturing that has been doing well and also core L&T type of companies, industrials like ABB, Siemens, road builders, etc. From this entire segment, which are the pockets you think are better placed?Abhishek Basumallick: I am personally very bullish on railways because there is continuous thrust from the government in developing railways. I am also very positive on the energy transition that we are seeing. So, the entire renewables, wind, solar, that space.
Also, that would mean power generation because if I look at data centres that are coming up, if I look at all the transition away from fossil fuels that is going to impact power generation in a very big way, these are areas which I am very bullish on.
Again, real estate is not directly related to all of this, but real estate – both commercial and residential – has picked up after many years of slump. Usually when we see real estate as a segment picking up, it goes on for at least two to three years and we are probably halfway there. So, still some time to go for the real estate sector as well.
But what about real estate as a pack? Do you think the bulk of the rally is behind us? Or is there a long runway for growth there as well?
Abhishek Basumallick: I think there is some more runway to go. I do not know whether it is going to be long, but I do not think we are halfway there, we are probably less than that. So, there is some way to go for real estate.
What about the dark horses or underperformers? Now, whether it is IT or even banking, the large private banks had not done as well and did not participate in the market rally. Do you think some of these names could be the outliers by the end of this year?
Abhishek Basumallick: IT might take a little bit longer. It might take a couple of quarters more for the earnings to start bottoming out or starting to pick up. Private banking is now getting to a place where it starts to look interesting. The larger banks or even the mid-sized private banks, are starting to look interesting. But yes, people who have a slightly longer-term horizon could look at both these types.
The two other sectors which have not been in the public limelight, one is chemicals, the other is insurance. While I am pretty bullish on insurance, chemicals sector is getting to the stage where we are probably seeing bottoming out in the businesses and things could turn around in the next 12 months.
