Value stocks

Value stocks: Growth or value, financials are a great space to be in now: Nitin Raheja

“It will now become more of a rising market based on stock selection, the trend continues from what we have seen over the past few months and this trend is likely to continue for at least the next quarter,” says Nitin RahejaExecutive Director, Head – Discretionary Actions, Julius Baer Wealth Advisors.

Do you think the worst is already priced on the market? Should we go into stock selection mode?
The stock picking mode has been pretty much the norm for quite some time. Markets from August to now have seen virtually no returns or for the Nifty it is low single digit returns. But for midcaps and smallcaps, they went nowhere. Specifically, from their highs, almost close to the widest market width, there is a negative ranging from 10% to 50-60%.

As for the Russian-Ukrainian war, it was more of a shock and awe that lasted for some time and the markets then rebounded with equal rigor and actually outpaced that event. What we’re seeing from a market perspective is that a bigger factor has been the whole asset class being viewed differently in light of the Fed’s shift in stance on tightening and liquidity.

It will now become more of a bottom-up oriented market based on stock selection, the trend continues from what we have seen over the past few months and this trend is likely to continue for at least the next quarter.

The consumer basket is under some pressure today and comments from HUL suggest there may be a drop in volume this quarter. Inflation is not helping their cause either. Is it time to take money out of this sector and put it into metals and IT etc.?
In our view, those stocks that inherently had characteristics of a defensive nature since the regularity of earnings was so huge, achieved a kind of reverse bond valuation with some growth. In the short term, the growth-value equation does not appear very attractive in this sector and given the sharp rise in commodity prices, the pressure on margins will continue.

Sure, they’re going to pass it on in the next quarter, but there are other better opportunities than in this basket because valuations are high and don’t reflect the kind of growth we expect in the next few quarters.

What is your opinion on finances? A note from Morgan Stanley explained how positive they are on this sector and they see some value. CLSA also wrote on ICICI Bank suggesting a 40% hike.
We are also very positive on financials. We believe that after a cycle of almost three to four years after the IL&FS episode, finances have gone through a very difficult period. Initially, there was a liquidity crunch and a crisis of confidence. This was followed by Covid and then these moratoriums. Everything falls into place during this period.

The biggest players in the sector have been able to increase and recapitalize balance sheets. Credit costs have come down, and as we enter the economic earnings growth cycle, we see credit growth starting to pick up, in line with normal GDP growth, which is expected to be in the double digits. . We see financials as a good space. All of this has been further aided by the fact that persistent REIT selling in recent months has been more focused on the financials sector, as it is one of the largest holdings and, therefore, valuations have now declined.

Whichever way we look at it – from a growth or value perspective, financials are a very good space to be in and they will create good value over the next few years.

ITC has been a strain dog, but what now? Do you buy into any of the FMCG names when the news is all bleak assuming the news is in the price or do you think the worst is yet to come?
From a business point of view, the next two quarters are going to be very difficult for the entire FMCG pack. From a valuation point of view, we think they are more than fair, in that they are still a bit overpriced today.

Traditionally these companies are great places to hide during tough times as they have resilient business models but today we are in a bullish economic cycle scenario we are going to see a story of earnings growth on several years emanating from India, at which point these companies, given that they’re going to be going through challenges and their valuations are up significantly, aren’t necessarily the best place to be. Opt for better growing areas during this time.