“There are possibly 5 to 6 sectors that have driven up these earnings estimates.” Raychaudhuri said the improvement has been broad-based, with earnings upgrades visible across several parts of the market.
However, market has been declining for about a month, with renewed tensions in West Asia raising concerns over crude oil prices. Forecasts of oil reaching $115-120 a barrel could hurt India because the country imports a large part of its oil needs. Higher US bond yields and uncertainty over interest rates are adding to the pressure.
“It’s just unfortunate, I think, that the good news kind of coincided with the bad news, and the bad news seems to be winning out for now.” Raychaudhuri said investors should therefore look for signs of easing inflation expectations and a resolution to the West Asia conflict before making larger allocations.
Despite the broader weakness, he sees opportunities in sectors where earnings estimates are improving. These include electronics manufacturing, defence, commercial and distribution services, diagnostics, hospitals and health-tech platforms. Some private sector banks are also seeing earnings upgrades after a period of underperformance.
Raychaudhuri said investors should not view the private banking opportunity as being limited to one large bank facing leadership uncertainty. He pointed to ICICI Bank as an example of a lender that has delivered positive surprises through better interest margins and higher fee income.
For now, his advice is to stay focused on these pockets of strength rather than take large fresh positions across the market. “Maybe wait for some of these problems being resolved before allocating larger quantum.”Watch the full conversation here
He is also cautious about the initial public offering (IPO) market. Rather than chasing newly listed stocks, he prefers companies that have been listed for at least one to two years, as their trading history gives investors a better sense of acceptable valuations.
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