While markets have perhaps bottomed, expect more like a relief rally rather than a huge bull run this year as earnings growth projections have got tempered down from early teens to around 10%. If oil prices don’t come down soon, we could see further cuts in earnings forecasts. We need to keep in mind that commodity prices are going up and that will impact raw material prices for many sectors.
Cheenu has segregated stocks into 3 categories based onimpact of the Gulf situation: (1) companies whose demand will be impacted (2) companies whose raw material prices will be impacted and who may not be able to fully pass it on to consumers (like cement and autos), and (3) companies who will be able to pass on cost increases to consumers or who are not impacted by the situation (like financial services and to some extent pharma).
She has skewed the portfolios of HSBC Midcap Fund and HSBC Large & Midcap Fund more towards the 3rd category.
Both her funds have delivered strong top decile 1 yr performance with alpha over benchmark in excess of 10% in both cases.
In a year filled with uncertainty – starting from tariffs to AI disruption fears to now the Gulf situation, Cheenu’s big call was to build more and more certainty into her portfolios. Any stock that was a hope trade was exited in favour of stocks with strong growth visibility amidst uncertainty.
Her big call on churn in financial services is paying off well. She favours mid segment private sector banks over the large ones which had stopped gaining market share some time ago and have therefore seen valuations deteriorate. She also prefers capital market oriented plays –especially asset management companies and exchanges.
Her decision to stay significantly underweight IT services has also contributed to alpha. Her view is that IT services is in the midst of an important transition – and that’s not a time when managements focus on growth. Best to let the transition happen and then identify stocks worth investing in.
Her investments in select online retail plays have also paid off well. Her picks are in niches with a dominant incumbent – including a cosmetics retailer, an eyewear retailer and an insurance distributor. She is staying away from quick commerce plays where competitive intensity is increasing.