How are you looking at the overall market set-up now? Do you think that there is a sense of relief in the market now that the second wave of the pandemic is gradually going behind us and we are likely to see a strong capex recovery kicking in?
The sense of relief probably came pretty much within the middle of the second wave itself. Our 12-month forward Nifty target is about 15,500 and so we are clearly looking at a downside from where we are right now.
Capex is one of the stories you should generally be careful and selective in terms of which sectors you want to play when valuations are stretched. We have been advising investors to look at private banks, even though bank stocks have run up on a relative basis to their historical premium to the market. Some auto and PSU names look interesting.
Which individual companies are you looking at in the financial space?
I would want to play the top 3-4 private banks and . If you look at any stock in isolation today, it looks expensive as compared to its history. But you have to look at where the valuations are relative to Nifty and where they were in the past. Most of these private banks are still at about 10-12% discount.
How are you looking at the power sector? This sector has been abuzz of late. Do you believe it is a flash in the pan or there is some merit in the story?
The immediate outlook on growth and demand may not be all that strong. Interest rates have bottomed out and you could start seeing interest rates in the bond markets going up. These sectors would typically perform better. The kind of PE compression that happens for these stocks should be a lot lower than what you would see for other stocks. Our house view is for a gradual increase in rates overall, but I think stocks like
should probably do better if the rates start rising. Otherwise, from a demand outlook perspective the near term is not so great.
