How to make money in this market? Here’s what Harsha Upadhyaya of Kotak Mahindra AMC says

Even as the benchmark equity index BSE Sensex has declined 1% YTD, sectors such as infrastructure, healthcare and oil and gas have managed to deliver double-digit returns to investors. Where the BSE Oil & Gas index has advanced 19% on a year-to-date basis till February 14, the BSE India infrastructure and Healthcare indices have advanced 15% and 12%, respectively, during the same period.

Will the ongoing momentum in these sectors be sustained and which sectors will deliver solid returns to investors going ahead? In an interaction with Business Today, Harsha Upadhyaya, Chief Investment Officer, Kotak Mahindra AMC, said that the pharma and healthcare sector is poised for outperformance over the next few years. In addition to this, he further advised investors to zero in on banking sector funds for the long run.

Upadhyaya explained that the domestic pharmaceuticals demand is likely to witness a pick-up in recovery in acute therapies. Hospitals are seeing steady growth with improved profitability. Price erosion in the US seems to be moderating, which was one of the prime concerns for the sector in recent times. The valuations relative to the market are favourable from a 2-3 year perspective. On the other hand, the banking sector is well-capitalised with no significant asset quality-related concerns.

“In line with strong economic growth, we continue to see good broad-based credit growth. But there seems to be short-term headwinds due to moderating net interest margins (NIMs) and slowing deposit growth. However, the sharp underperformance of the sector in recent times offers a good risk-reward equation for a patient investor,” he said. The BSE Bankex has declined 5% YTD. On the other hand, the benchmark BSE Sensex has lost 1% YTD.

Sharing his views on the infrastructure sector, the money manager added that the government’s focus on the completion of infrastructure projects continues.

“We also expect a meaningful pick-up in infrastructure investments in the next few years. Real estate demand momentum is also healthy. Order book position for most companies provides robust visibility of execution over the next couple of years. Strong balance sheet position is another key positive,” he said. The BSE Realty index has gained 8% YTD.

The PSU sector is also the talk of the town amid the ongoing outperformance in the domestic equity market. Upadhyaya believes that most of the PSU businesses were trading at very low valuations and that has primarily driven strong outperformance of this basket in the past year or so.

“PSU basket is not homogeneous when you look at the businesses. From here on, we believe the uniform rerating may not continue but for the strong businesses within the PSU cohort. One should rather analyse each business and corresponding valuations before investing rather than making investment decisions based on ownership,” he said.

With a rally of 7%, the BSE IT sector has managed to outpace markets in the ongoing calendar year. However, Upadhyaya thinks that the macro challenges led by the sluggish global economy continue to remain. Near-term commentary by companies on discretionary tech spends also suggests cautiousness. However, the situation is expected to improve gradually in FY25. “The recent sharp outperformance of the sector does not leave much room for valuations to rerate from these levels,” he said.

 

 

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