ICICI Prudential AMC’s Deputy CIO – Equity, Anish Tawakley, advises caution on PSU stocks due to valuation concerns. The team focuses on domestic cyclical sectors and has thrived by spotting the recovery in the real estate cycle and early homebuilding activity. They monitor capacity utilization, earnings expectations, and manufacturing performance.
With PSU stocks rallying non-stop amid heavy buying by retail investors, Anish Tawakley, Deputy CIO – Equity, ICICI Prudential AMC, says his team has turned cautious on the PSU space since the start of 2024 due to valuation concerns and have been gradually trimming PSU holdings. He believes some PSUs are overvalued now. ICICI Prudential Business Cycle Fund has outperformed in the last 3 years by nearly doubling money.
Three years back, the economy had spare capacity and weak demand, but post-COVID, the demand started to recover. The team noticed the turning of the real estate cycle and took a positive view on domestic cyclical sectors like capital goods, automobiles, cement, insurance, and asset management companies. They believe homebuilding is fundamental to employment creation and demand generation.
The team keeps a close eye on capacity utilization levels in non-tradable sectors such as power and cement. If demand exceeds capacity or there is a slowdown in homebuilding activity, they will turn cautious on the economic cycle.
Investing in business cycles involves three decisions – buying, sizing, and selling. While buying gets more attention, exiting is equally important. The team trims positions when earnings expectations become unreasonably optimistic.
Within manufacturing, sectors like power, renewables, defence, railways, and realty are in an upcycle. As for Tesla’s entry into India, the team will take a call based on how companies respond to the changing environment.
Anish Tawakley advises retail investors to look for opportunities in areas that are out of favor and exit from areas that the market is enthusiastic about. He cautions that some PSUs are overvalued now.
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