Here's Why HDFC Securities' Unmesh Sharma Expects Weaker Earnings Growth
Sharma estimates that earnings will grow only 12% in fiscal 2024 as against market expectations of 18%.
India is not a fragile economy and it's the right time for long-term investments, but the short-term view needs closer scrutiny, according to Unmesh Sharma of HDFC Securities Ltd.
The upsides are capped as earnings would grow only 12% in fiscal 2024 as against market expectations of 18%, Sharma, the head of institutional equities at HDFC Securities, told BQ Prime's Niraj Shah.
He projected negligible index upside in an atmosphere of challenging macroeconomic factors, although the market is "not likely to fall off a cliff", he said. He suggested an allocation of 80% to standard themes such as banking, real estate and industrials, and 20% to contrarian plays.
"Look for long-term thematics in the mid-cap space," he said.
Will Markets See Sharp Downfall?
Tight earnings crunch is a primary driver of the possibility of a sharp downfall for the market, Sharma said.
Having seen the market's endurance of geopolitical tensions and inflationary pressures, the only threat left is "liquidity crunch", he said.
Accelerated quantitative tightening and ultra-conservative view on interest rates will only take place if the U.S. Federal Reserve is forced to suck out liquidity from the system in a scenario of repetitive failures against inflation management.
But the probability of this happening is almost zero, said Sharma.
Key Themes
In terms of manufacturing, the government has realised that this is one space where change can be easily noticeable, Sharma said. "Since we are in a pre-election year, manufacturing is in the limelight by virtue of the centre's economic and electoral interests."
When the economy revives, rural spending becomes lucrative. But at present, crop protection companies seem to be in a precarious position globally.
This is mainly because the relative dependence on rain for crop production has decreased in the past two decades. Therefore, he estimated that rural consumption could tumble a bit in a bad monsoon season, but would not disrupt the space particularly.
Information technology services seem to be under pressure of a macro headwind and he suggested a nuanced perspective on the IT mid caps.
Sharma is overweight on big banks and industrials.
