360 ONE’s Mayur Patel Spots Opportunities in 4 Sectors for Your FY27 Portfolio
Understanding the Market Landscape
The current market exhibits a notable divergence in valuations. As the Nifty trades at approximately 3.5x price-to-book, compared to its long-term median of around 3.2x, it indicates only a slight premium. Mayur Patel, President & Fund Manager at 360 ONE Asset Management, highlights four sectors that still demonstrate improving structural drivers yet remain undervalued for their medium to long-term earnings potential:
– Financials
– Telecom
– Commercial Vehicles
– Integrated Solar Manufacturing
Compelling Risk-Reward Opportunities
Patel believes that the market architecture has significantly improved, bolstered by several macroeconomic factors:
– Post-Budget Optimism: The recent Budget has paved the way for enhanced liquidity conditions.
– Trade Enhancements: The US-India trade deal is active, allowing for better trade visibility.
– Credit Growth Recovery: Following a moderation to 9-10%, credit growth has surged to 13-14%, with potential for further acceleration.
– Income Support: Upcoming tax reforms and the pay commission cycle are expected to support urban consumption.
Evaluating Each Sector
Financials
– Market Dynamics: Bank earnings have experienced pressure due to slower credit growth. However, with improving liquidity and a nearing end to the declining rate cycle, further credit growth is expected.
– Investment Insight: Private banks are still reasonably valued relative to their Return on Equity (ROE) potential.
Telecom
– Industry Stabilization: The recent industry shift from intense competition to a stable three-player market positively alters economics.
– Growth Potential: The prospect for calibrated tariff increases can enhance margins and cash flows, especially with the rollout of 5G.
Commercial Vehicles
– Demand Drivers: Policy support, including a reduction in the Goods and Services Tax (GST), has spurred demand.
– Replacement Opportunities: A significant portion of the market consists of older vehicles, setting the stage for a robust replacement cycle.
Integrated Solar Manufacturing
– Renewable Ambitions: India’s renewable energy target of 500 GW by 2030 has become increasingly achievable, with accelerated solar additions.
– Investment Horizon: The most promising opportunities lie in integrated solar manufacturing, where companies with strong technological capabilities can dominate the market.
AI Disruption in IT Services
Patel is cautious about the potential disruptions that AI may introduce within the IT services landscape. The rapid evolution of AI technologies threatens traditional business models, and firms that fail to adapt quickly to these changes may face challenges in sustaining growth.
Conclusion: Focused Investment Strategy for FY27
As investors consider their portfolio strategies for FY27, it is essential to recognize the ongoing structural changes across various sectors. Patel underscores the importance of identifying underappreciated areas within:
– Financials,
– Telecom,
– Commercial Vehicles, and
– Integrated Solar Manufacturing.
These sectors present unique opportunities for both short-term gains and long-term investments. By focusing on these areas, investors can capitalize on the evolving market dynamics to enhance their portfolios.