Nimesh Chandan, Chief Investment Officer at Bajaj Asset Management, is drawing a hard line in the sand regarding sector allocation. Large private banks are the pick of the litter right now, offering a mix of attractive valuations, solid asset quality, and a year-on-year decline in slippages. Meanwhile, the IT sector is on the sidelines. Despite valuations dipping to levels that offer attractive dividend yields, Chandan argues the recent bounce is likely short-lived. "The bad news is in the price," he noted, emphasizing that a sharp upward rerating is improbable without clarity on growth from industry majors.
The macro backdrop is messy. Short-term market flows are being dictated by crude oil prices, which are spilling over into raw material inflation and squeezing gross margins. Chandan expects a clearer direction on crude only after the United States midterm elections. This uncertainty keeps the CIO cautious on broad exposure, particularly in sectors sensitive to input costs.
Within financials, the strategy is selective. While large private banks are favored, Bajaj AMC is staying away from certain NBFCs, including gold loan providers. Pockets of stress in rural and drought-hit areas, combined with falling gold prices, have raised the specter of rising non-performing assets. "This gives us a lot of comfort being there and hence maybe some of these NBFCs where we are seeing some short-term issues we are staying away from at this point of time," Chandan explained.
The broader market has fractured into a barbell structure. Small caps are delivering strong growth, with at least 50% of tracked companies beating earnings estimates and another 25-30% meeting expectations. Large caps, conversely, offer appealing valuations. To capture this dynamic, the firm’s Flexicap fund has been adding digital consumer, platform, and quick commerce companies during recent market dips. These businesses are posting positive numbers ahead of the festive season, though their ability to pass on commodity cost increases will hinge on brand strength and supply chain moats.
One area of quiet accumulation is capital market infrastructure. Exchanges and depositories represent a mega trend currently trading at attractive valuations following a sentiment-driven correction. Regulatory changes and volume concerns have weighed on the segment, but growth and volumes are expected to recover over the next few months. The asset manager is actively buying these stocks, though an immediate upmove isn't anticipated. A potential cut in long-term capital gains tax could serve as a catalyst, a move the street has not fully priced in.