Rahul Bhuskute, Chief Investment Officer at Bharti AXA Life Insurance, said that the auto sector could potentially turn out to be the dark horse of FY22. Bhuskute is a tenured investment professional with over two decades of diverse and extensive experience across organizations such as ART Special Situations and ICICI Group. In an interview with Zeebiz's Kshitij Anand, Bhuskute said that as worries around the Covid recedes and the economy embarks on a strong growth path, we could see a recovery in the demand for 2W, 4W and CVs in FY22 and FY23. Edited excerpts:-

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Q) We have seen a fast and furious rally in September as we move closer towards 18,000 on the Nifty, and about 59,000 on the Sensex. What are your views on markets?

A) Several macroeconomic indicators have turned positive and are driving the market. For instance, the centre’s tax collection, GST, PMI, good recovery in Real Estate, Management commentary beyond 1QFY22 was quite upbeat.

There is a genuine belief that the housing and capex cycles are at an early stage of initiation, after almost a decade and that these cycles will have a multiplier effect on many industries.

Earnings CAGR is expected to be strong at 20%+ FY21-23 for the Nifty50. Earnings delivery should help in maintaining valuations.

Globally, central banks continue to remain focused on growth and have viewed rising inflation as transitory. We do not expect any meaningful change to their outlook on maintaining interest rate levels this year.

The Reserve Bank of India (RBI) also maintains its accommodative stance with inflation staying within its set tolerance bands.

We would tread the markets cautiously, given the sharp run-up over the past year, but we remain positive about the upside in equities over the next one year.

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Stocks will do well in an environment of rising GDP, with a commensurate increase in profitability. We believe the following themes should outperform - global recovery, digitalization, higher IT spending, domestic consumption pick up, higher spending on infrastructure and private capex, real estate and China plus one strategy.

Q) Telecom sector has been in the limelight in the week gone by. What is your view on the sector, the impact of the PLI scheme, and what should investors do?

A) Telecom sector has seen its share of pain, but now the remaining players should benefit from the consolidation that has happened in the industry.

This industry enjoys significant tailwinds from the increasing digitalisation that is being witnessed in the world at large, and the increasing data usage emanating from it. Recent measures announced by Government indicate that it is serious about making sector financially viable.

We believe that the worst is now behind us and the sector should see a double-digit revenue CAGR supported by periodic tariff hikes.

PLI scheme is positive for the sector, and it would encourage domestic manufacturing of telecom equipment.

This will reduce the dependency on imports which will be positive for the sector as it enters the 5G capex phase in coming years.

Q) Most of the global markets have done well in 2021 -- where do you see India with respect to global peers? Is the Indian market getting overheated or is there still value that could attract global investors?

A) India has been an outperformer relative to global markets in the year 2021. Indian economy is now entering a structural growth phase, which will keep Indian equity markets attractive for any long-term fundamental and macro investor.

Having said that, many emerging markets (EMs) and even some developed markets are being viewed as ‘Value plays’ by the global investor community as these have underperformed US markets on a decade long basis.

India along with other markets has benefited from this tailwind. Now, that the markets have gone up, in the short run, there would be volatility and some correction cannot be ruled out.

Q) PLI scheme in the auto sector is likely to favour companies that are EV focused. Is it a good time to accumulate auto companies and are there any stocks that are likely to benefit the most?

A) The Govt. has approved a PLI scheme for the Auto sector with an outlay of Rs. 260bn. The incentive would help OEMs price products competitively and build an ecosystem. It would be too early to identify winner in OEMs.

However, we believe auto ancillary provides a good opportunity especially for those having exposure to the EVs components.    

Q) What should be the ideal portfolio strategy – at a time when there are new-age IPOs entering stock markets or stay with popular blue-chip stocks.

A) Portfolio needs to be balanced across various investment themes. One should look at new age IPOs with an open mind and selectively participate where the company has the potential to have a dominant market share in its area of operation in years to come.

Please note that there are significant proofs of concept in other parts of the world around the same themes, and global investors and advisors have witnessed and benefited from these investments.

In terms of long-standing blue-chip stocks, good quality stocks provide stability to the portfolio and lower the risk profile, so one should remain invested in them.

Q) Which sector could turn out to be a dark horse in FY22?

A) The Auto sector could potentially turn out to be the dark horse of FY22. Currently, the sector is under pressure due to several factors including global supply chain issues, a lack of availability of semiconductors, sharp fuel price increase and lower than expected demand environment.

As worries around Covid recedes and as the economy embarks on a strong growth path, we could see a recovery in demand for 2W, 4W and CVs in FY22 and FY23.

Improving affordability, stable interest rates and a decline in fuel prices will also help improve demand. The financial services sector, including banks could also get a fresh look-in and rerating from investors.

Q) What is your investment philosophy? Has your holding in cash increased amid the recent run-up to be deployed later?

A) Our investment philosophy is to remain fully always invested in the market. Though we may increase cash for short periods of time due to temporary reasons, we ensure that we plough back the cash into the markets at the earliest opportunity.

Timing the markets is a difficult thing to do, and we prefer to take advantage of the inherent strength of the markets by staying invested across cycles.

Q) What is your call on small & midcaps? Do you see a rotation trade happening from broader markets to large caps?

A) The small and mid-caps have generated strong returns of 84% and 74% over the past year compared to 54% for the Nifty. We expect quality mid and small caps will continue to outperform, as will the strong large caps.

Our approach has been to have a balanced portfolio, with robust and high-quality stocks across market capitalisation.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)