Exports: Textiles, Pharmaceuticals, and IT as Focus Areas
When asked about potential value in the exports sector amid ongoing trade uncertainties, Bhandarkar highlighted the importance of careful selection.
“I would just say that you have to be very selective because we are seeing that companies are facing challenges and when they face challenges, they end up looking for solutions and one of the things we have seen particularly with textiles is that a lot of companies are trying to broad base their market. If they were dependent on a particular geography, they are trying to broad base it and move to other geographies, that is one way,” he said.
He also cited pharmaceuticals and IT as sectors positioned to benefit from current trends. “There are certain sectors like pharmaceuticals where we do have a spare bit of core competence and I think that also gets benefited by whatever happening right now. And also going back to your earlier question, IT companies themselves will evolve. See, they are very-very well-governed companies with strong cash flows. At the end of the day whatever is happening today with AI will eventually fructify into clients needing more AI-based solutions and those will be customised for every organisation or for every use case. So, there is a play there. Yes, for a short-term investor it is a bit of a challenge, but for a long-term investor I guess things will open up much better.”
Financials: Credit Growth and Selective Opportunities
On financials, Bhandarkar noted that credit growth is starting to pick up, which provides a strong growth runway, particularly for private sector banks. “We have also seen the regulatory overbearance on unsecured credit, etc., sort of soften now. So, to that extent the growth runway for the private banks is quite strong,” he observed. He also flagged opportunities in PSU banks, especially with the potential return of private sector capex. “That puts the PSU banks also at a very strong position. I think see, what has to be recognised here then that other than certain exceptions here and there broadly as a sector the asset quality has been pristine. And what we are now starting to see is that the segments which typically are very volatile and get most affected by economic downturn, etc., which is the microfinance or the small finance banks, even there, there seems to be some glimmer of hope in terms of a bottom coming through. So overall, things are quite fine. Valuations from a historic perspective are not very expensive right now. There are pockets of opportunity and, as I said, we prefer to take a basket approach here and play the risk-reward depending upon how we see the growth elements to play out in each of the names that we hold.” Midcaps and Smallcaps: Signs of Earnings Recovery
Turning to midcap and smallcap valuations, Bhandarkar emphasized a gradual recovery after a long period of underperformance. “The current market rally or even the movement over the last few months has been very narrow and we have seen the broader indices not participate as well. If I am not wrong, the smallcap index is underperforming the Nifty by almost 12% or a little more than that. Now, obviously, there were probably good enough reasons for that. The valuations sometime in the middle of last year were fairly high and the earnings sort of collapsed last year.”
He added that recent quarterly results show a promising turnaround. “Now, this quarter, the quarter which went by, which ended on November 15, we are now seeing after seven quarters Nifty 500 grow more than 15% in profit growth YoY and also, we are seeing on a YoY basis smallcaps and midcaps leading the growth numbers. If I am not wrong, the midcaps and smallcaps have minimum grown by 27% YoY within the BSE 500 and the largecaps have grown by 12%. So, there seems to be some recovery here and I would think that smallcaps have taken back the lead after five straight quarters.”
He highlighted that festive season demand, which is yet to fully reflect in numbers, could further strengthen the outlook. “Clearly, our assessment is that this festive season that went by was one of the best in last five years and that is what we hear from the companies who interact with and quite clearly, we should look forward to strong earnings performance continuing into the next year.”
