Ajay Modi, vice president, research, Piper Serica, sees value in textile exporters, wood-panel companies, small banks, NBFCs and hospitality
Ajay Modi, vice president-research, Piper Serica, thinks this is a good time to go big on smallcap stocks, as valuations of quality companies are below their five and 10-year averages.
With over 10 years of public and private market research experience across sectors, Modi sees value in pockets textile exporters, wood-panel companies, small banks, NBFCs and hospitality.
In an interview to Moneycontrol, Modi says earnings will continue to be driven by BFSI and also expects improved from pharma and IT names in the second half of this fiscal. Edited excerpts:
What is your take on quarterly corporate earnings? Any surprises?
Earnings for Q4FY23 have largely been in line with expectations. EPS estimates were broadly as per expectations. The technology exporters led by Infosys had sharp underperformance. This was made up by banks that saw credit growth with improving asset quality and auto companies that saw improved margins led by cooling commodity prices.
Do you expect earnings upgrade cycle to resume from the second half of FY24?
We do not expect any sharp upgrades or downgrades. Earnings will continue to be driven by BFSI while there should be an improvement in the performance of pharma and IT exporters in the second half of FY24. There is scope for upgrades in some IT companies.
Will the pharma sector be the dark horse this financial year?
Pharma exporters saw sharp growth in FY21 and FY22, which was largely attributed to covid-led order books. However, over the last couple of quarters, large pharma companies saw muted growth and margin compression led by a price reduction in the US.
While it is too early to say if we will see a marked improvement in the pharma pocket in FY24, the valuations of companies like Divis give comfort to long-term investors.
Do you see earnings upgrade cycle continuing in the banking space?
We believe that the next couple of years will see some consolidation in the banking space. Smaller banks have reported steady performance and improving asset quality. There will be upgrades in this pocket. Large banks continue to grow well. However, the valuation multiples leave very little room for large earnings upgrades.
Your take on FMCG space?
FMCG companies saw steady margin improvement, which was an outcome of falling input costs. However, the volume growth remains muted. Rural demand continues to remain sluggish. It is expected that monsoon this year will be good and if that happens, rural demand should stabilise.
As the country goes into the (Lok Sabha) election, there will be some splurge on rural India leading to further improvement in demand. However, a large part of this may only be visible three quarters from now.