How will FMCG, IT and realty sector perform going ahead? Mayuresh Joshi answers

The whole week we saw that the budget focus talks were in action this week. You talk about infra, defence, fertiliser or cement. What should we aim at now? Should we look at these sector scaling, achieving new heights going further?

No, I was hearing your opening remarks, both on macros and micros. But two things are happening here. One, I think the markets are looking forward to what the probable budget announcements would or might be.

Our own take at Marketsmith India is that the reform processes which have continued for 10 years, there would not be any significant change in terms of capital allocation for a whole host of schemes that the Modi government has embarked upon. Infra development and infra allocations are expected to double over the next five years.

There is going to be significant allocations as far as defence is concerned. You have already heard statements related to rural and urban affordable housing. And therefore, I think roads, railways, highways, ports, infra, manufacturing, the capex in terms of budget allocations will continue. The second part in terms of how the markets might actually behave post the budget and our expectation again is that there might be no negative surprises that the budget will probably throw up. We will still continue on the path of fiscal consolidation and therefore that should be taken positively by the markets. The additional one lakh crore also gives sufficient amount of elbow room and headroom for the government to probably play around with in terms of allocations towards infra, as well as reducing the fiscal deficit in general. So, to that extent, a lot of freebies which are expected by the market, which was the fear, I think should not come through. I think it should be a more prudent allocation as far as the budget is concerned. And therefore, we will head back to earnings and earnings are expected to hold up in the 30-40% range.

Domestic cyclicals is something that will still continue doing well and a whole host of sectors. You have pointed that out. You have seen huge moves continue in sectors like defence, railways, but in our opinion, I think selective stocks within the infra theme, cement theme, water, water treatment, water allocation I think that could be a big theme for the budget as well, is something to be looked out for. Consumer staples, discretionary both selectively should start doing well.

With good monsoons expected, rural recovery in real earnings should start coming through in the second half, which will give a huge leg up for these segments of the market as well.

So, I think more focus on the domestic areas at this juncture, our take is that a balanced and a mixed approach in terms of your portfolio, including some stocks from pharma, can absolutely hedge the aggressiveness in the domestic cyclical overweights that you probably got. So, remain optimistic on the market.

Let us talk about three sectors in focus. First, on the gaining side, you have the real estate space. Do you still see more legs to this rally given that the PMAY has been extended? And on the flip side, you have seen FMCG and IT being the top laggards today and I cannot help but notice that the top Nifty 50 losers, four out of five are from your FMCG and IT legs, so HUL, Infosys, Tata Consumer and ITC. What is your outlook for this space going ahead as well as do you see more legs to the rally when it comes to real estate?

I think it is a natural trend. The market is in momentum. I think a lot of these defensive spaces go into a relaxed mode. So to that extent, I think how the monsoons play out and what the initial signs are being seen of a very normal monsoon this time around, above average in some areas as well, I think you might expect a decent rebound as far as rural incomes are concerned.

Rural is still a large part of FMCG sales and therefore as rural incomes will start coming back and there is a definite trend of discretionary spending coming back to the forefront, you will see volumes pick up quite significantly.

So, I think a lot of ad spends that are happening, a lot of grammage increases that are happening without any price increases might just normalise, leading to better numbers from the second half for a lot of these FMCG players.

For realty as a space, I think we are still going through that six-year cycle in the third and the fourth year, two years still to go, historically as we have seen real estate cycles play out.

Pre-sales velocity for most players, you have seen launches by DLF getting sold off in a week, a few launches by Sobha as an example have got sold out. There was a launch by Kolte-Patil in Pune which got sold out in a matter of weeks.

And therefore, I think the appetite in terms of premium and above par properties which is above notional values, which an average investor probably pays, is still looking very-very good.

And to that extent, I think real estate developers have done well. But real estate ancillaries is something that one should now start focusing upon. Greenlam Laminates, Century Ply is an example.

They are just about right at this juncture. They have gone through a lot of input cost inflation pain in the past few quarters. Volumes will come back because as new houses are now getting built, will obviously need refurbishment happening in those new houses and existing houses will continue their mode of refurbishment as well.

So, I think real estate proxies, ancillary stocks might do well. For the IT sector as a whole, my whole take is to wait out for Q1 numbers.

Midcap IT relatively better fared compared to largecap. Order flows have remained consistent, margins have remained consistent, commentaries related to both revenue growth as well as pricing have remained consistent as well.

But for largecap IT in general, I think what probably happens with three of the biggest spaces, BFSI is still going through some element of pain in North America.

Retail and manufacturing both in the Euro context and the American context should start showing signs of recovery in the second half. There might be some element in terms of frothiness as per pricing and orders are concerned. So, wait out for numbers for Q1 for largecap IT. But anybody holding midcap IT can continue.