Automotive stocks: ETMarkets Smart Talk | Auto auxiliaries could do better than auto stocks: Abhishek Basumallick

As automakers emerge from a 4-5 year and post-Covid crisis, there is good traction in passenger vehicles, especially in the premium SUV segment, says Abhishek BasumallickFounder, Intelsense Capital. “Automotive auxiliaries could actually do better than autos because some of them are also exporters and China+1 is a very big topic now,” he says in this interview with ETMarkets. Edited excerpts:

Are you surprised by the relative resilience of the Indian market after the Jackson Hole meeting compared to the US market?
Not really. India is one of the very few countries in the world that is in a good economic situation.

We rely too heavily on Western media and American markets for inspiration. If you look at the fundamental situation, India today is very different from the West. We have been hit by the rise in crude and now that it is cooling things should improve from an inflation perspective. Moreover, growth has started to return to the core sector after many years. We are seeing good order flow in the infrastructure space, from defense to rail.

Moreover, slowly but surely, FII will also make a full comeback as India will remain a positive outlier among its peers in the global economy.

Given the volatile moves we’ve seen in Indian indices over the past week, where do you think we’re headed in the near term? Is it a good time to buy the dips or should you book profits on the ups?
Over the past 3-4 months, I’ve argued that the Indian market is looking pretty good in the medium to long term. Some of the main reasons are that inflation will start to fall with a bigger base effect.

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Business results have been quite good. Certain sectors such as automotive, real estate, engineering and capital goods, defence, railways have all shown very good resilience in recent quarters. FMCGs seem to be coming out of the doldrums as major commodity prices cool. I am very bad at predicting the very short term, but in the medium term we are definitely set for new highs.

Nifty Bank was relatively outperforming Nifty. Would you prefer the security of large private sector banks or would you find smaller banks much more attractive for the next few months?

Overall, the financial sector is emerging from a slump after many years. NPAs are now well under control and credit growth has started to pick up nicely. If you stretch the time horizon, you will see that Indian household debt to GDP has increased from 30% in 2018 to 37% in 2021. For comparison, China is at 61%. So there is a huge reach from the banking sector. With greater fintech penetration and better financialization of savings, the entire financial sector is on the cusp of a sustainable recovery.

In this sector, we must focus our attention on conservative players. Try to avoid flashy managers, those who try to grow too quickly and are not well diversified. Size is not essential. Thus, private banks, NBFCs and well-managed MFIs are all well positioned.

Shares of PSU banks have also rallied in the meantime. What explains the dynamic in the peloton?
PSU banks are available at very low valuations, which attracts investors. It is undeniable that the type of market penetration

or a or a. But they need to work well to attract the new generation of affluent, tech-savvy customers.

Banks have started delivering numbers well and if that holds up, which it should, there is no reason for valuations to be so cheap. So, you can definitely expect a sustained rise in some of the major power supply banks.

Does it make sense to be a counterbuyer in IT stocks after the correction? Is dumping IT stocks justified amid fears of recession and margin squeeze?
I would be very careful to buy technology now. There are a lot of work stoppages and project reductions in companies and this is just the beginning. If the United States and Europe, especially the United States, are afraid of a recession, whether it happens or not, there will be a significant delay in the signing of new projects. With the recent price drop, stocks are now more reasonably priced, but I would still wait a bit longer and provide more clarity in terms of the impact of the US recession and order flow before committing capital.

Nifty Auto is up more than 32% in the past one-year period and almost everyone seems to be bullish on auto stocks these days. How to filter stocks in this sector?
Look for both companies in the automotive and automotive accessories industry. Automobiles are coming out of a 4-5 year slump and post Covid there is good traction in passenger vehicles, especially in the premium SUV segment. Automotive auxiliaries could actually do better than automobiles, as some of them are also exporters and China+1 is a very important topic right now. Look for companies where there is no product obsolescence with the adoption of electric vehicles.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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