Time to be back in market; here’s where you can put your money now: Devina Mehra
Synopsis
“FMCG, after a very long period of underperformance, is looking better. We are most overweight on capital goods, industrial machinery. As we still have the rupee depreciation theme, we are partially overweight on parts of textiles, chemicals and are somewhat overweight on IT services. We have increased our weight in auto four-wheeler space.”
Yes it is. I have been saying since Diwali last year that this is the risk for 2022; I mean risk as well as opportunity for some but that was quite clear even before the commodity big rally or the Russia-Ukraine conflict. Of course, of late, RBI has made some efforts and so we have seen a slight moderation but that overall trend will continue for some more time.
What is your advice for equity investors? Crude oil price fall has been a clear advantage for the Indian equity markets but we did not see that much euphoria play out although now we are seeing a solid catch up. Do we also need to see other moving parts change for the overall market sentiment to turn?
As you mentioned, commodity prices. This has been quite an interesting time because they say that a week is a long time in politics but this time, a fortnight has been a long time in economics. Two or three weeks ago, if you would have asked everybody in business what would you like to see, that would have been the moderation of inflation and that has happened at least from the commodity end, which is where this whole thing started in the first place.
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Also, palm oil has cracked big time and that helps prices of edible oils and a lot of other agri commodities, barring soy and corn, which still remained high. But they are also coming down quite rapidly. So the only part of the commodity basket which still remained up was oil and gas but that has also come off its high.
Our guess is that crude might as well remain range-bound rather than coming down or going up very sharply, but it does not look as if it will come down a lot more. But whatever has come down, that helps India besides the fact that India may not always be buying at that quoted crude level. Food prices coming down will help, palm oil and certain other things coming down will help FMCG companies which use that as an input.
Stocks Recommendations
No, that is definitely going to help FMCG in two ways. One, of course, is that as the prices for some of the other components come down, there is more room for FMCG purchases. What was happening in the previous few months was that people were postponing not just consumer durable purchases but even things like shampoos and all that. That was showing up in the declining volumes for FMCG.
So FMCG, after a very long period of underperformance, which has lasted over a year-and-a-half, now is looking better. We do have some FMCG names now in our portfolio including ITC. In fact, that was the first one to come back into our portfolios some weeks and months back and that has played out well for us.
The sector that we are most overweight on is capital goods, industrial machinery. As we still have the rupee depreciation theme, we are partially overweight on parts of textiles, parts of chemicals and we still remain somewhat overweight on IT services.
That has been something I have spoken about several times. Those would be the broad themes barring some telecom and a few other odd things, but in terms of sectors and the other big change other than FMCG coming back has been in the auto, especially the four-wheeler space. We have increased our weight there.
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