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Bullish on these 3 sectors in next 12-24 months: UR Bhat, Dalton Capital Advisors

We have been through a bad patch and it can only get better from here.

ET Now|
Oct 17, 2019, 04.59 PM IST
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Private sector banks, engineering construction companies and a contra bet auto are the three sectors to bet on for next 12-24 months, says UR Bhat, Director, Dalton Capital Advisors. Excerpts from an interview with ETNOW.

Are you getting a sense that investors are eager to buy the market and probably a floor is made in the market?
If the quarterly results are any indication, it does not look like there is a great scope for the market to go up from here. There has been a reasonable participation by both domestic and foreign investors over the last two-three days. The results that have come out have not alleviated much stress. It does appear that way as far as the results are concerned, even though quite a few of them have made statements that things will only improve from here. Given all that, the market is probably 5-6% away from the previous all-time high.

Therefore it is not as if the market has corrected a lot. The international situation is something that one needs to be more worried about with the US government making some noises about Hong Kong, trade deal being on the backburner for some time now plus of course the security situation in Iran and the Gulf of Hormuz.

All these things add up to generally less risk appetite and therefore slightly lower flows into emerging markets and therefore to India. It does not look like as if there is a huge opportunity in India, that suddenly there is a turnaround and therefore people have to come and invest. It will probably take some time, but we have been through a bad patch and it can only get better from here.

Do you think the government will go ahead and provide further boost to the economy even if it is breaching the fiscal targets a bit? Do you think the market would like it if it happens?
The government seems to be committed because there is at least some market talk about cut in personal income tax rates to boost demand. The government is doing whatever it can almost on a weekly basis to liberalise and to see whether they can boost sentiment.

We have gone through a bad patch no doubt about it but I think things can look better. As far as the fiscal deficit is concerned, even if there is one big privatisation that people are talking about in oil sector and with the sort of additional money that has come from RBI, it should be possible for the government to carry out strategic divestments to maintain the fiscal deficit target. The government has been confirming over and over again that they will not breach fiscal deficit target. We should give them the benefit of doubt. They must have some way of meeting that shortfall because of all the concessions that they have given.

What is your most favourite sector over the next 12 to 24 months? Give us a basket of stocks or some flavour of where margin of safety is best if the market has a downfall from current levels?
One does not necessarily have to be in equities. As I said, the outlook -- internationally or even domestically -- is not suddenly turning around for the better. It may not be the best sort of decisions to invest fully in equities right now, but if one has to be in equities, the margin of safety, if any, could be still found in the better managed private sector banks which have given a very good account of themselves.

The size of the opportunity that they are presented with on account of the problems with the public sector banks is huge. If they are able to contain the NPA problem which they have done reasonably well, some of them represents the best place for hiring.

In addition, the government is investing a lot on modernising infrastructure. If you have seen the results also, the engineering construction space is something that is doing reasonably well. That is another sector where one could hide.

Plus of course, there is a contrarian bet on autos because there have been specific reasons why autos have not done very well over the last few months. I think these issues will probably be solved and things look better by April next year because the base itself is very low plus also the BS VI problem would have been solved and all new vehicles will be BS-VI compliant. There is some value left on the auto sector plus of course generally the industrials are things that might look good.

On the negative, of course telecom continues to be a negative. The IT sector probably will be somewhere near neutral because the valuations look a bit stretched and have not factored in the lower growth numbers that we are seeing in the results that have come till now.

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Along with equity, it's time to put money in fixed income, gold and real estate: UR Bhat, Dalton Capital Advisors

Expect a constant negative bias as we go along: UR Bhat, Dalton Capital Advisors

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