Pankaj Murarka on stocks to buy on mkt correction | Economic Times

Like every other bull market, this market will have its own volatility and there could be some pullbacks or short-term correction but directionally, we remain firmly in a bull market, says Pankaj Murarka, Founder, Renaissance Investment Managers. What exactly is going to be the outlook for the markets going forward? Will there be bouts of volatility that one should get accustomed to or is a mean reversal likely?We are firmly in a bull market. It has been a ferocious bull market that we have experienced over the last one year. The indices have given almost close to 100% returns and that has been the case with most of the equity markets globally as well and that reflects the global liquidity that has been playing and sloshing around and the good thing is after a gap of almost four or five years, we are seeing strong earnings growth recovery in India across the corporate sector and in the index companies. Like every other bull market, this market will have its own volatility and there could be some pullbacks or short-term correction but directionally, we remain firmly in a bull market. Where do you see opportunity within the metals basket? We are seeing sharp increases in metal commodity prices across-the-board -- be it copper or non-ferrous metals. Even if you compare it to pre-Covid levels, the price is up 20- 30% and that is partly due to the fact that we are seeing a strong resurgence in demand in the user industry across manufacturing infrastructure and so on. More importantly, some of these metal prices are at 10-year or 11-year highs. We have not seen those prices on copper or steel or on some of the non-ferrous metals in the last 10 years which is effectively translating into significantly higher profitability for the metal companies. We like Tata Steel within the largecap metal names because we think it is a classic play on strong steel prices and they are very much integrated and are least impacted by raw material price hikes. We like Hindalco as well. Are you finding valuation comfort in midcap IT names that you thought were great opportunities to buy into at almost the same time last year?We continue to like those companies and those platforms. Those are not one-year or two-year picks but are stories which are going to play out in India over the next 10 years. So we continue to remain bullish. The fact remains that those stocks have moved quite a bit over the course of last year and the valuations today are more expensive than what they were a year back. But that does not hold us back. We continue to like them and probably we will continue to own all of these because valuations are rich but we think the growth prospects are strong for these companies and despite rich valuations there is opportunity to make reasonable returns for investors who have a medium term time horizon. Given the fact the economy is opening up, we are seeing a strong recovery in a lot of other pockets of the economy beyond IT. We have started liking the economy-oriented sectors across manufacturing, autos, infrastructure capital goods and so on. What is the outlook on the cement basket? Is this a sector you would bet on given the kind of resilience that it has exhibited?We like the whole segment because we think that as infrastructure activity picks up, the sector will probably record strong volume growth and we have seen a fair bit of expansion in the profitability or EBITDA. As economies open up, even housing which was a bit constrained will open up big time. We are seeing strong demand resurgence in the real estate sector across major pockets of India. Rural housing has been doing well and there is an incremental thrust from the government on infrastructure projects to accelerate execution and ordering of new projects by NHAI in terms of road construction. The sum total of all of this is that cement volume growth is likely to remain strong over the next couple of years and the sector will continue to enjoy some degree of pricing power. Where are you finding comfort in the market right now? Where would you buy afresh if we were to fall a little bit further?We continue to like private sector banks, especially the larger ones because I think they will continue to deliver very strong growth because of the massive consolidation that is happening in the banking sector, where some of the smaller banks are constrained of capital and as a result, larger banks are going to deliver superior growth and probably gain market share and valuation in that space. We clearly like those private sector banks. Apart from that, we like autos as a sector. We have seen a strong demand resurgence across all segments of the auto sector be it tractors, be it passenger vehicles, be it commercial vehicles and this demand is likely to sustain because there is a significant latent demand that exists in the economy. In the commercial vehicle segments as a whole, the volumes have halved from their peak in FY19 and from here on, the sector is poised for 40-50% CAGR growth over the next two years or three years. On top of that, we are seeing smart recovery in trade volumes and transportation volumes which should again aid the commercial vehicle volumes. We like autos as a whole and a lot of those auto ancillaries which support the auto OEM companies. Of late, we have also started liking some of the engineering capital goods names because we have started seeing initial signs of revival in investment in the economy and as growth recovery plays out, the investment cycle will probably accelerate and the engineering and capital goods companies should do well.