What is the sectoral Outlook and where can we expect the pockets of excellences going forward?
In a panel discussion on earnings growth we had asked Shreyash Devalkar, a senior fund manager from Axis Mutual Fund on what he saw as the sectoral outlook and if he sees pockets of excellence in any.
It was an interesting answer from him. As he sees it, the EBITDA margin growth across the spectrum — large, small and midcap has been phenomenal. Free cash flow generation has been good. Debt reduction is above par. And all this has been across Commodities to Corporates.
But if you look at the two years CAGR of revenue growth, then you will see that not many pockets have surprised us. On a 2-year basis or 1-year basis everything can look good.
When they do their study on a CAGR basis for two years on Revenue or volume growth, there is an inflation element in this as well. Then they have to look at the margin improvement. Some sectors notably cement and IT had tailwinds. And they saw some tailwinds across sectors. You cannot extrapolate basis these tailwinds.
We have to tend towards looking at it from a future point of view. We have to chart which sectors will grow in this scenario especially on the revenue front and not just because of the margin improvement.
These pockets are not sector-specific, they are individual stock specific which is why it is very important to study the data available. Financial analysis is a science and done best by planners who spend their waking days and nights analyzing the data for revenues, profits and earnings growth.
Take a look at the Retail Industry. Nobody believes the forecast CAGR figures for the next two years. They are only just hitting Pre-Covid levels. But those companies who had expanded because they had cash have grown and can show a high 2-year CAGR.
If you look at another industry like IT, because of the shift to digital many companies have shown good growth.
Therefore, you must look at the beneficiaries of growth in those industries. Any good financial analyst will help you achieve this.
Most good advisors prepare a sound long term holistic financial plan for you based on your risk profile, define your financial goals along with you, do an asset allocation (with contingency plans built in) with you. You will surely be able to tide over challenging times without panic and with calm if you have conversations with financial advisors who can help with your risk profiling and therefore asset allocation portfolio. They are in the best objective position to help you understand and mitigate the risks of letting emotion get the better of you.
