At a time when investors are looking for the next structural play, CLSA's Mahesh Nandurkar is confident that non-lending financial companies such as general and life insurers and asset managers would be among the best bets.
“I think that is one segment of the market that has done well and can continue to do well for structural reasons and a long, long time to come,” the strategist said in an interview to BloombergQuint.
While the valuation of these stocks may be “a bit of a concern”, the strength of the fundamental business and long-term visibility for the stock makes the premium worth it. Nandurkar said he expects such companies to grow between 15-20 percent. “That is something that makes us quite excited.”
That comes at a time when the stock market has seen polarisation within the NSE Nifty 50 after the government announced a corporate tax cut to revive growth. The benchmark now trades at a 25.7 percent premium to its 10-year average, according to Bloomberg data. However, only half of the stocks under it have gained so far this year while only seven stocks have gained more than 20 percent.
Speaking about the high valuations investors have been paying to buy into these stocks, Nandurkar said they're paying for visibility and the lack of guaranteed growth in other segments in the market.
“That's what the market is telling you when certain stocks—even with 10 percent growth—are trading at 50-60 times PE (price-to-earnings) multiple,” he said. He, however, said the high valuations cannot be justified.
Watch: Mahesh Nandurkar on why investors are willing to pay a premium for select stocks
‘Slowdown To Bottom Out Sooner'
Optimistic about the future of the economy, Nandurkar said that India's economic slowdown is going to bottom out “sooner, rather than later”.
The economy should accelerate in the next 12-18 months, he said, and this acceleration will likely be on the back of a recovery in the investment cycle.
“The consumption part of the GDP equation has peaked and the investment part of the equation has reached its bottom. As investment recovers, it will bring a broader economic recovery also providing some boost to consumption. That, however, will be a secondary reaction,” Nandurkar said.
The Reserve Bank of India's continuous rate cuts and better capitalisation of the banking system will aid this recover, he said.
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