Indian Corporate Margins May Widen Despite Global Worries, Says DSP Asset Managers' Vinit Sambre

Vinit Sambre of DSP Asset Managers Pvt. expects margin expansion with improved profit despite global worries in the next two to three quarters.

Long-term drivers of the equity market tend to be those with sustainable earnings over time, the head of equities at DSP Asset Managers, told BQ Prime's Niraj Shah.

Many corporates' earnings over the last year were impacted by higher prices of raw materials and other input prices, he said. However, there is clear visibility for expansion of margin and profitability ahead, with a bit of ambiguity on the demand momentum front, Sambre said.

• Consumer, automobiles, cement and gas utility companies are emerging as large beneficiaries of moderating raw material prices at present, he said.

• The scepticism around revival in demand momentum should wither out as inflation abates in the coming quarters, Sambre said.

• Some companies were strengthening their "core"—expanding their capacities and target markets, and also exploring options of acquisition.

• Stable balance sheets and the increasing momentum of capital expenditure is hinting at a comfortable future, according to Sambre.

Although non-banking financial companies are set to benefit more from a rate cycle reversal, credit quality is at its peak in the banking space. Plus, lower interest rates accelerate the credit growth cycle, Sambre said.

Banks, currently, are not expensive as valuations are below the five and 10-year average. Moreover, foreign investors are allocating capital to risk assets, of which banks and financials occupy a major proportion, he said.

According to Sambre, it's wise to continue having a reasonable exposure to banks with a marginal shifts to the NBFCs.

Ancillaries have a better history of wealth creation as such companies are beneficiaries of both the new and existing demand, making them less volatile as compared with the pure real-estate firms, Sambre said.

The balance sheets of ancillary units are slightly more simpler to assess because of the linear nature of their demand and, therefore, they stand as a superior choice for long-term allocations.

"There is definitely a waiting time involved here," he said, amid the mixed commentary of pharmaceutical companies on their fourth quarter results and guidance for the future.

The business dynamics of these companies has not deteriorated as much based on the nature of their capex cycle, which is cumulatively ahead of where it was five years ago.

This indicates better growth outlook from a long-term perspective with intermittent cycles of rise and fall in between, Sambre said. He continues to be exposed to pharma companies.