Consumption a better theme than capex-related bets: Shreyas Devalkar

SHREYAS DEVALKAR tells in an interview with Shreepad S Aute that he believes equities as an asset class would continue to remain attractive

Benchmark indices are available at rich valuations, despite moderate earnings growth and a challenging economic situation. SHREYAS DEVALKAR, senior equity fund manager at Axis Mutual Fund, however, believes equities as an asset class would continue to remain attractive. Excerpts from an interview to Shreepad S Aute:

Gross domestic product (GDP) was recently revised downward. What is your reading of this? When do you expect recovery?

From the equity-market perspective, it was known that GDP numbers will be revised down. I’m not surprised or disappointed with the data. As far as recovery is concerned, expectations of a homogeneous recovery are unwarranted. One should look at each segment turning around on a cyclical basis. But, from a base-effect perspective, from Q4FY20 (March quarter) onwards, you’ll see no further deterioration in the data points; the market is also factoring in that.

How do you see the upcoming Budget from a market perspective?

There are some market expectations in terms of direct tax cuts and capital gains. But the government has been taking most of the economic policy actions, be it the goods and services tax rate changes or corporate tax cuts outside the Budget. So, one need not focus much on the Budget for policy action. But, it will be important from a fiscal deficit perspective.

The markets are richly valued, despite modest earnings growth. How long will this disparity last?

Yes, growth has come down in sectors such as automobiles, fast-moving consumer goods (FMCG), among others. But, some stocks have also seen relative correction in recent times, despite corporate tax rate cuts. The market is rewarding sectors giving relatively better growth. I am not saying the stocks are not expensive. But something always comes up. After the Infrastructure Leasing & Financial Services crisis, the debt market got polarised. As and when the economy starts to see broad-based growth, you’ll see valuation disparity coming down.
 

So, you don’t see a sharp correction ahead? 

In the market, if you keep the recent events aside, a couple of things have happened. Relative attractiveness of the equity market as an asset class has helped. I think that would continue as other asset classes are not performing well and absolute interest rates are low. In fact, stress in real estate has led to money flowing into equity. Even if real estate revives, the equity market will continue to outperform, as real estate growth will signal broad-based growth and support equity flows.
 

What is your fund allocation strategy? 

We follow the quality and growth principle. In sectors where growth deceleration is relatively higher as compared to GDP, we lower our exposure and vice-versa. Recently, we have bottom-fished automobile stocks in the past few months after lowering our allocation in 2018. Also, given the concerns over fiscal, consumption, including all consumption-related segments like FMCG, retail lenders will be a better bet than trying to venture into capital expenditure stories.

Year 2020 started on a good note for mid- and small-caps. Will this trend continue? 

I think all the three segments (large-cap, mid-cap, and small-cap) will give similar returns. Mid- and small-caps may not outperform large-caps, but they will not underperform either. Even in 2019, all these three segments had similar success, though the headline indices gave you a different picture. In 2019, roughly 30-35 per cent of stocks in all the three categories had outperformed the Nifty. I think this trend will continue.