Updated: Nov 23
In the IT results declared so far, Hemant Kanawala, senior vice president of equity and head of equity at Kotak Life Insurance, mentioned in an interview with Moneycontrol that the management’s outlook for demand recovery in the second half of FY24 has been characterized by caution. He further noted that large companies have secured numerous significant contracts in the past six months, resulting in a robust order backlog.
He feels the IT earnings may see a sharp recovery once the economic outlook in US stabilises.
With more than 15 years of experience in fund management, Hemant Kanawala believes that corporate earnings are going to be the main driver of equity returns in the near term. On the macro front, global liquidity and oil prices are important, as they will be a key input for RBI to set interest rates, he says.
Q: Do you expect significant improvement in quarterly earnings of IT companies from the second half of FY24 onwards?
In the results declared so far, the management commentary has been cautious about demand recovery in the second half of FY24. Large companies had a lot of deal wins in the last six months and hence their order book is healthy.
However, due to uncertainty in the US economy, corporates have been careful with actual spending. We may see a sharp recovery once the economic outlook in the US stabilises.
Q: Do you think one should stay invested in the real estate space for the medium term?
The real estate sector is seeing a recovery after almost a decade of sluggish sales. This is on the back of better affordability for consumers and a healthy balance sheet of corporate giving them the ability to launch projects.
The introduction of the real estate regulator RERA in 2017 has ensured better visibility on the completion of the project, giving consumers confidence to invest. Hence Real estate space looks good from a medium-term perspective.
Q: Are the valuations looking cheap in the OMC space?
The challenge in the OMC (oil marketing companies) space is that their marketing margins fluctuate inversely with oil prices as retails price of petrol and diesel has been fixed by the government to insulate the economy from the fluctuation in crude oil prices.
Hence although the valuations are reasonable on historic earnings, it is difficult to estimate their future earnings and the valuation thereof.
Q: Which are the most important factors to focus on in the rest of financial year, which can impact equity markets (positive as well as negative)?
We believe that corporate earnings are going to be main driver of equity returns in the near term. On the macro front, global liquidity and oil prices are important, as they will be key input for RBI to set interest rates. Although valuations have corrected in last two years, further rerating will depend on movement of interest rates. If interest rates correct, then there can be upside from valuation also.
Q: Your take on the rural recovery that is expected to be impacted by the uneven distribution of monsoon…..
Agriculture sector is not the only contributor to rural economy. Services like construction are also significant component of rural economy. Government’s push towards rural housing and infrastructure has been supporting the rural economy to a reasonable extent.
Uneven distribution of monsoon will have an impact on agriculture and hence government may have to do extra bit to support the rural economy.
Q: What are the most important things to look at in the September quarter earnings?
Investment has been strong pillar of the economy, but consumption and exports have been showing weaker trend. Also in Investment, the government has been doing the heavy lifting while private capex has been sluggish.
It will be important to understand from companies how are they seeing growth shaping up in these segments.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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