Daily Voice: From these seven strong growth areas, this CIO suggests selecting midcap ideas

Daily Voice: From these seven strong growth areas, this CIO suggests selecting midcap ideas

Finding businesses in a bull market with really favorable valuation multiples is never easy. According to Shailendra Kumar, largecap equities are now more affordable.

Overall, the quarterly results to far are in line with expectations, according to Shailendra Kumar, Chief Investment Officer of Narnolia Financial Services, who spoke with Moneycontrol.

Kumar adds that capital market businesses have been the source of this quarter's pleasant surprise (Q4FY24). According to him, capital market businesses are starting to take center stage within the larger BFSI group.

According to Kumar, who has more than 20 years of experience in fund management and investment advising, it is best to choose midcap companies only from industries that are showing extremely high growth, such as capital markets, electronics, semiconductors, real estate, media, power equipment, and energy.

In general, how do you feel about the current business earnings season for Q4 and FY24? Any surprises mixed with disappointments?

Overall, the outcome so far is in accordance with expectations. Businesses that produce industrial and engineering products have been growing rapidly. This quarter's good surprise came from corporations in the capital market. Among the larger BFSI group, capital market businesses are growing in importance.

The performance of media businesses has also greatly improved. IT businesses kept letting us down. Their development remained slow, and even for the next fiscal year, there are no indications that things would get any better.

Have you seen any notable changes in the telecom industry's fundamentals, particularly since Vodafone Idea 2.0 launched after a major fundraising campaign?

For the last two to three years, we have continued to take an overweight position in the telecom industry. For every major participant, the average revenue per user (ARPU) has increased dramatically, yet capital expenditures have remained low. The Vodafone Idea fundraising campaign will boost the industry's optimism even further.

Have you altered your opinion on technology stocks, particularly in light of the results for the March quarter?

Since 2022, we have underweighted suggestions related to the IT industry. We maintain our underweight posture. Growth is still not showing any signs of acceleration. There is occasional order book cancelation as well as slow execution. We anticipate a moderating trend in valuation multiples before changing our position.

Given the high valuations, do you believe that selecting stocks in the midcap area seems to be challenging?

Finding businesses in a bull market with really favorable valuation multiples is never easy. Largecap stocks are now more affordable.

It's best to limit your selection of midcap firms to those in industries with very rapid development, such as financial markets, electronics, semiconductors, real estate, media, power equipment, and energy. Niche midcap firms in the automotive and pharmaceutical industries also seem promising.

Do you see the defense and railroad industries continuing to grow?

The commercial performance of railway and defense firms is improving structurally. It is advisable for investors to wait for corrections before making a purchase, since railway businesses have unusually stretched near-term value multiples.