Gautam Duggad, Head Of Research – Institutional Equities, Motilal Oswal Financial Services, says: “The consumer discretionary sector holds a significant position in our model portfolio, with eight consumer stocks, predominantly of a discretionary nature. The second sector of interest is hotels, which has ample room for growth after emerging from a decade-long downtrend. Similarly, the real estate sector, which witnessed a prolonged downturn from 2008-09 until recently, is now showing signs of a more enduring uptrend. ”

What is the outlook when it comes to the IT space? Does that cautious stance continues due to uncertainties? If so, would the strategy be to look at a mix of large and midcaps or would you stick to just the largecaps?
Gautam Duggad: As far as IT is concerned, we are running an underweight stance in our model portfolio. While the stocks have underperformed, especially the largecaps because if you look at the prices of some of the largecaps today, they are still trailing the prices that they had in October 21. Now, with Accenture’s guidance yesterday and commentary, the softness can continue to prevail and we might see a little more earnings downgrade.

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Expectations are quite moderate there. It is not as if people are expecting manna from heaven from IT in FY25. Our preference within our overall underweight stance is still with largecaps because we find a slightly better risk-reward value proposition in largecap IT versus midcap IT.

You have been saying that there is still value in PSUs. Ex-banks, would you say that now the next leg in PSUs is going to be a little tougher? Have you identified such opportunities and could you highlight any?
Gautam Duggad: It is a cliché to say that you always have to look bottoms-up, you have to be stock specific. I mean, in every market condition, you have to be very stock specific and bottoms-up and today’s market is no different. Obviously, within PSUs, there are many segments, many sectors. As far as our stance is concerned, if you look at our model portfolio, we have SBI and Bank of Baroda in our model portfolio for a fairly long period of time and we still continue to find value there.

We hold HPCL, GAIL, and Coal India in our model portfolio. So, there has been a heavy representation of the PSU basket in our model portfolio for some time now. These are individual stocks where we find value from a point of view, earnings from a point of view, valuations and dividend yields.

As far as the broader market PSU is concerned, things have done exceedingly well. There will obviously be some stocks where earnings might not have grown, but stocks are up 3x, 4x. Now, those are the segments you have to be very cautious about. So, you cannot have a broad-brush approach. You have to be selective and you have to keep an eye on earnings and of course the valuations and that is why we are having a view that as a basket when you look at aggregate, PSU still represents value and when you look at our model portfolio, there is a representation of PSU in various sectors in our model portfolio.Can you name a few of the companies where you expect or sectors or representation from those places where earnings growth is likely to be higher than 20% in the next three-four years?
Gautam Duggad: Outside the 80 companies that participated in our midcap conference, we do not have coverage. So, I am afraid I cannot talk about their earnings growth potential. It is fair to say that a large part of the basket that we like from the companies which participated in our conference are part of three different sectors broadly. One is consumer discretionary, where we always have a very positive stance. If you look at our model portfolio, we hold eight consumer stocks, out of which, seven are discretionary in nature. There is just one staple.

Second, is hotels. We feel that hotels as a sector have a long way to go. The cycle has just about started two years back and it has gone through a 10-year of a down cycle. So, we still find a lot of value in the hotel sector. We think that the underlying operating fundamentals are still very strong and the demand-supply dynamics are very favourable and more or less we have a similar view on real estate, which has also gone through a fairly long period of a down cycle from 2008-09 to almost 2021.

Last two years have been good and we think the durability of the cycle in real estate can be higher than what we have seen in the past, which is why we have a very significant overweight position on real estate in our model portfolio. Versus the benchmark weight of zero percent, we have almost 4% allocation to real estate. So, those are three-four sectors which were part of our conference and which are the sectors our analyst team likes.


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