Earnings Season Has Not Been So Positive: Nepean Capital's Gautam Trivedi

The earnings season so far on a broadscale has not been so positive, according to Nepean Capital's Gautam Trivedi.

"Cement and I.T. have been lacklustre both in terms of their results and guidance, especially where the net hiring rate has fallen off the cliff in the I.T. sector," Trivedi, co-founder and managing partner at Nepean Capital, told BQ Prime's Sajeet Manghat. "However, private sector banks and the banking space as a whole stood comparatively strong."

Real estate, according to Trivedi, was another area that quite surprisingly withered, despite the rebound seen in the residential space and building materials like cement and ceramic tiles. Investors should keep a close watch on the FMCG sector and wait for the valuation to correct, he said. "Quick-service restaurant space also looks good, especially in urban India."

Themes that are newer to India, such as electronic manufacturing services, are also good areas to keep an eye on, according to Trivedi. While on production-linked incentive scheme themes, focusing on existing listed companies is best, he said.

The primary market won't get better for another quarter until the world economy gets better, Trivedi said.

Banking And PSBs

In the public sector banking space, it's important to distinguish 'State Bank of India' from the rest, as SBI harbours innate respect and ratings that are comparable with those of other private sector banks, Trivedi said.

The valuation gap may have narrowed, but two years ago, when the government announced that it would privatise two PSBs without naming which ones, the entire bag of PSUs experienced an uplift, he said. This also had a positive effect on the non-performing loan cycle, he said.

However, factors such as the quality of management and the ESOP planned for private sector banks appear to lack strength, which is why PSUs need to be handled with caution, Trivedi said.

Hence, Nepean Capital has maintained its distance from PSBs for some time, he said.

FII Flows And Its Impact

In the short to medium term, the market runs on fund flows, according to Trivedi. India has seen foreign investors sell stocks worth about $18.5 billion in 2022, which was more than matched by domestic institutional investors through mutual funds and alternative investment funds, he said.

However, the concern is that as interest rates rise, AAA-rated bonds will become a significant alternative to the equity market, which wasn't the case a few years ago, he said. "The emergence of more avenues for investment in pure equities can shift the dynamics of foreign inflows." This is slowly making its way among domestic retail investors, too, he said. "The prolonged underperformance of the market will make investors explore different streams of investment as asset classes apart from equities."

"Given the domestic strength, if the U.S. ends up in a shadow recession, we won't be highly impacted," Trivedi said. "But if it undergoes a deeper recession which does not seem to be the case at the moment, we'll be in trouble as no capital market across the globe will be spared."

Views On The Budget

The government's record allocation to capital expenditure of Rs 13.7 lakh crore in FY24, which contributes to about 4.5% of the GDP, according to Trivedi, is the biggest takeaway from the Union Budget 2023. This alone, according to him, will propel the economy uphill.

And with nine state elections scheduled over the next 12 months, followed by the main general election in 2024, the capex cycle at the centre and the state level will be "heavy, especially in the second half of the fiscal year", Trivedi said.

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