India has done reasonably well as an economy, as well as a market and hence valuations are certainly stretched, says Chirag Setalvad, Head of Equities, HDFC AMC.
“The stretch really is on the midcap side, where businesses have done well, but the valuations are at a meaningful premium to where these companies are treated historically. I would imagine that large-cap and small-cap are more fertile hunting ground for ideas as opposed to mid-caps,” Setalvad said in an exclusive conversation with Udayan Mukherjee, global business editor, Business Today TV.
If the market were to correct typically, small-caps will correct more, mid-caps a little bit less, even as large-caps tend to be defensive. “I think the narrative is unlikely to change. But again, if small caps are reasonably valued and if we see a market correction with more sensible valuations, then it would present a good opportunity,” Setalvad noted.
Commenting on the IT space, the market guru said the tech sector is still trading at a 15-20 per cent premium to the historical average. “IT spending is here to stay, and it is going to be quite meaningful even going forward,” he added.
Setalvad is also quite constructive on the financial services space and the banking sector. “It is important to note that banks have seen a tremendous improvement in their fundamentals in the last couple of years. There is better growth, stronger balance sheets and NPAs are under control which means banking in general is doing well,” the market expert noted.
Setalvad is positive on auto ancillaries, as these are very well-balanced businesses and tend to be well diversified between the domestic market and exports
Sharing his take on hospitals and the hospitality sector, Setalvad said, both these segments are doing extremely well, as they are sitting on levels of occupancy which gives them a lot of pricing power.
“We have not seen major additions to hotels in the last couple of years due to Covid and, I think the same is true for hospitals as well. The supply is limited, the demand is extremely strong, and India is still a highly under penetrated market from a hospital perspective and even from a hotel perspective. So, I think these segments will do extremely well over an extended time frame,” he said.
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