Domestic liquidity strong, rural-focussed stories could do well: Emkay

The Indian market is going through a Diwali cheer phase as frontline indices hit fresh record highs, backed by macro data and steady earnings trend in its first week of the season.

Having said that, these are still early days as companies with good numbers generally declare results in the early part of the season. “Ex-financials, companies in our coverage should have 10 percent growth,” Krishna Kumar Karwa, MD, Emkay Global Financial Services told CNBC-TV18 in an interview.

He expects rural India-focussed stories to do well, especially in the tractor segment. “The valuations are reasonable in some stocks and the government will continue to focus on that segment,” he said, adding that organised retail segment with focus on tier-2 and tier-3 towns were growing as the focus is shifting.

But Karwa also stresses on the fact that sectoral performance at a given point is what drives the market. For instance, in telecom, against the back drop of tariffs, the sector seems to be bottoming out or take the case of RIL, which was an underperformer and in the past on year, it has now risen a lot. Earnings remain the key, he added.

Another factor at play is the strong domestic liquidity. “There is tremendous (domestic) flow into equities. Possibly investors were not invested in equities earlier or TINA (There is no alternative) factor is coming into play for other asset classes,” he told the channel.

In terms of sectors, Karwa highlighted that pharmaceuticals and IT have underperformed for the last few years. The valuations look reasonable, but growth may not be exciting. Going forward, with the valuation and cash flows, in 12-18 months, good returns are likely.

Among NBFCs, he highlighted how PSU banks were unable to fulfil their mandate and that share has been taken by private banks and NBFCs. On a short term basis, he said, they may look expensive, but if such growth continues, the sector could be a good bet.