5 sectors that look good for next 12-18 months: Sanjay Dongre, UTI AMC
Nifty is quoting at about 19 times one-year forward multiple, says Sanjay Dongre.
ET Now: You seem to be of the view that the market is trading at a premium despite so much correction and consolidation. What makes you say that and which are the sectors or baskets that you think are most expensive right now despite all the volatility and correction that we have seen?
Sanjay Dongre: When you look at the market from the valuation perspective today the Nifty is quoting at about 19 times one-year forward multiple compared with the historical average of about 17 to 18 times. So clearly the market is quoting at a valuation, which is higher than the historical valuations. Again, if you look at some of the sectors where the valuations have gone to the roof; one example would be the FMCG where the valuations are significantly higher than the last five years or last 10 years average valuations while that sector seems to be facing some sort of slowdown in the form of lower volume growth and in that environment having a premium valuations. I am not sure what kind of return investors will be able to make from that sector.
ET Now: You are seeing some value in cement, construction, and engineering goods. What is the rationale?
Sanjay Dongre: I am not talking about value in those sectors. Actually one can clearly see the growth which is coming back in this domestic oriented sectors and that is very necessary for the valuations in those sectors to sustain.
So for example if you look at most of the construction names you will find that the order book is almost three to four times. Therefore going forward one can expect good amount of revenue as well as earnings growth in that sector. So would be the case as far as the cement sector is concerned after growing volume in high single digits in earlier years, in the last two-three months we are witnessing the price increase is taking place and that augurs well for that sector because in any commodity sectors the earnings are very sensitive to the pricing.
Once the pricing goes up it leads to disproportionate increase in the earnings or in that sector so these are the sectors where one can see good amount of earnings growth coming back in the coming quarters and that is why I feel the valuations could sustain in these sectors.
ET Now: What is your overall assessment of the market? What is the biggest headwind right now; is it geopolitical uncertainty, is it the trade war or is it crude. What according to you is the market most worried or cautious about in the Budget?
Sanjay Dongre: All the things you have mentioned are the worries in the market from the near-term perspective. As far as Indian stock market is concerned, clearly you will have worries in the form of crude oil prices going up because of geopolitical tensions. Their impact on the rupee and on the flows.
If you look at the market from the next 12 to 18 months perspective what is clearly evident is that earnings recovery is on the way and compared with 9 per cent growth in FY19, they would grow close to 20 per cent in FY20.
ET Now: Which are the sectors that will show outperformance when it comes to this quarter’s earnings growth?
Sanjay Dongre: Look very difficult to say on a quarterly basis, but when we look at some of the sectors from next 12 to 18 months perspective, banking, cement, construction, engineering and capital goods could witness good amount of earnings growth from here on.