There is foam in many pockets, Tibrewal said, pointing to some specific indicators.
First, the contribution of mid- and small-sized companies as a percentage of the overall market capitalization is about 36%, while their contribution to earnings is about 25%. This is a huge divergence, he said.
Second, investors expect very strong earnings growth. “When we do a reverse DCF (discounted cash flow) for many companies, we think the market expects an unreasonable dispersion of earnings over the next 15 to 20 years, which seems difficult on our part.”
Third, an analysis of the fourth quarter earnings of NSE 500 companies shows that the 413 financial services and non-banking companies grew only 7.5% to 8%. The remaining 87 banking and financial companies grew by 24%. This indicates that earnings growth is starting to slow.
While NSE 500 companies grew 30% during FY23, the growth this year may be around 14-15%. Tibrewal advises investors to take into account the fact that current market valuations do not take into account slowing earnings growth.
However, he also listed some sectors and issues that can still be examined.
Its main themes are consumption, where channel verification currently indicates some resurgence, and premiumization.
He also highlighted the change in the composition of consumption in India over the last decade. Spending on smartphones, wearables, OTT and mobile data is now almost Rs 6.5 lakh crores.
“When we talk about consumption, we also have to take into account these categories that did not exist a decade ago. And this is not a small number. It is twice the size of the automobile market in India and six times the size of the automotive market. two wheels in India,” he said.
Some of these companies may go public in the coming years and it is good to keep them on the investment radar, he said.
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Tibrewal sees a margin of safety in financial, pharmaceutical, consumer packaging and private sector industrial names that are linked to private capital spending.
You have to navigate this market carefully over the next 12 to 18 months.
“The important point today is not to focus too much on the immediate upside, it should be capital preservation over the next 12 to 18 months as we move forward,” Tibrewal said.
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