Largecap stocks and financial sectors offer the most value in short time: Sushant Bhansali

Sushant Bhansali, CEO, Ambit Asset Management, says in the short term, largecap stocks and financial sectors appear to offer the most value, as their multiples are lower than during the COVID period. Over the next three to six months, few areas show promise. However, looking ahead a year or more, sectors like pharmaceuticals, IT, FMCG, and financials have strong long-term potential. Despite cautious market sentiment and potential earnings growth challenges in the coming quarters, the long-term outlook for these companies remains solid.

The consensus call in the market right now is to stay with the largecaps, stay with the financials maybe, and stay away from some of the high PE counters and the risk beta names. How are you playing the weakness? Are we near the bottom levels or could there be some more pain in the times ahead?
Sushant Bhansali: Definitely, there is pain in the markets and it is not going in a rush. It will take a few weeks, a few months probably for the things to bottom out in a sense where again risk on sentiment will come back, but it will take some time.

Our view is that rather than worrying about what the PE is or rather than worrying about which sectors, one should be focused on stocks where earnings are visible in the near term or not because that is where the bulk of the pain lies where last few years FY22, 23, 24, the earnings season was amazingly well, and almost every second company was generating 20-25% earnings growth.


The earnings were quite broad-based, but in the last few quarters, that has subsided a lot. While most of the results are out, we believe that less than 20% companies would be delivering 25% earnings growth in this quarter if you look at the top 500 companies. From that perspective, one needs to be sure of what price you are paying for the earnings which you are seeing in the near term and it is more numbers than narrative. That is the mood of the market now compared to about a year back or more than before where it was more narrative than numbers.

Right now the market is adjusting its fair valuation multiple in this market correction and pricing in the earnings for the companies as well. How should one strategize at this given point? Are there any pockets of value that you see in this correction? After the fair valuation adjustment, where do you see value?
Sushant Bhansali: From a long-term perspective, there is enough value in many companies and sectors. From a short-term perspective, value is just probably more in largecaps and financials because that is where the multiples are probably less than what they were during COVID as well, not too many pockets beyond that in short-term. By short-term I mean the next three to six months. But from a one-year plus there are many sectors, be it pharma, be it IT, be it FNCG, or financials in addition where the long-term prospects are good and right now because of the sentiment in the market, which is a risk-off sort of, there is quite a bit of value left in those sectors in many names, where in many cases the earnings growth in the next one or two quarters might be challenging, but from a long-term perspective the stories are intact.

Since the start of this particular year, the narrative has changed, especially for the emerging markets and Indian markets have also changed. While some of the European and the US markets are touching new highs, some of our indices are getting into a bear grip. What has changed in your portfolio and how have you churned your portfolio since the start of this year and how are you looking to make even more changes in the times ahead?
Sushant Bhansali: We have not made much changes given the global context of trade wars which has been stimulated by comments every day from the political leaders globally. The economic side of the balance sheet has not changed much in that time period. The stories are the same, the narratives are the same, and the numbers are the same. The hypothesis is more risk-off because of varied comments and probably tariff restrictions which might come into play and might disturb.

From the India perspective, we do not have much export play beyond IT services and pharma. IT services will not have tariffs imposed but for pharma there might be some tariffs, but not in big terms because it impacts inflation and also these are life-saving drugs. So, we believe it will not take a big toll. From this perspective, we have not made many changes in portfolios, although our patience level with our companies in our portfolio definitely is coming down.

In the near term, the profit growth is a big challenge. We are reducing weights, and not necessarily going out of those names. We are definitely putting more weights behind where earnings are more sanguine in the short term.

In that case, you are not really getting bearish about a particular space, but are rather reducing your weights and allocating to where you see earnings growth coming in. Could you mention the sectors where you are actually seeing value?
Sushant Bhansali: In financials, there is definitely good value. From the earnings growth perspective, domestic consumption is doing reasonably well, but still, there are many pockets. On the discretionary side, there might be some challenges, but on the non-discretionary as well as lower side of discretionary, that challenge is less available.

On the rural side of the economy, in sectors which are focused on that, we see good earnings growth pickup. The Q3 results were quite good on that side and we expect that in Q4 and Q1 of next year, again there will be some good pockets of earnings there.

There is a lot of news flow and the consensus view right now is that there should not be much of an implication or an effect on the Indian pharma majors given the dependence of the US on the Indian generic players. But the news flow is weighing heavy on the index front as well and some of these largecap pharma names are reeling under pressure. Is this is a good time to increase your exposure there?
Sushant Bhansali: Definitely, the long-term story remains intact and as you rightly pointed out there is no choice but to buy from Indian companies in that space. It is a consolidated market and supplies are limited in terms of from where US and other markets can get their supplies.

India remains a preferred place to supply both from a quality perspective, speed perspective, as well as from a cost perspective. Thereby, long-term, the outlook remains intact and that is why these are sectors where because of the narrative and the shift in talks from quality leaders, there are some opportunities for investors, to make money in the next few months.

What is your take on the IT sector? Does it look favourable to you now? Also, there are some currency tailwinds. So, do you see value in IT at this juncture?
Sushant Bhansali: Yes, definitely. Currency-led margin expansion as well as the economy in the US is quite upbeat still and there were fears of recession from the last two years, probably more, which led to not too much expansion of projects, which is now coming into play. In the next few quarters, we should see good results from IT companies which give immense opportunity for investors in the next three to five quarters.

Apart from IT, any take on the metal pack as well because, see, in terms of the flows what we are getting to understand that there are some of the funds that are shifting from India to China market given the valuation. Are decent times ahead of metals and can one look for a bounce in that?
Sushant Bhansali: Metals are quite cyclical and the cycles are not too long. I will be cautious on which names to invest within. Definitely, in pockets, there will be opportunities, but one needs to be with the leaders who are having cost leadership because any bump up in the prices will first increase and boost their profitability and thereby making money for investors. So, I will be selective on metals.