I was just going through the top holdings that you have and it seems like you have a lot of the capital goods names in your portfolio as well, right from a Cummins to a Carborundum Universal, which is a bearings play etc. What is your entire thesis around manufacturing? What are the top stocks that you like?
We have been vocal about this theme for last couple of years. We believe that there is a revival of entire manufacturing space in India and capital goods is the great proxy to play that recovery across the sectors, not only say chemicals or electronics, but we are seeing traction across many other industries, for example, gas utilities, cement, steel. So a large part of manufacturing is something which we are seeing a very strong revival for. Just to put things in perspective, five, six years back, the total capex of India, which is state, centre and private, used to be in the tune of Rs 10 to Rs 11 lakh crores and this year on a trailing 12 month basis, we have already crossed Rs 20 lakh crores.
So we have seen over the last five, six years that centre and state have done the heavy lifting and we are seeing early signs of private sector capex also coming back.
We used to be four and a half, five lakh crores by private sector capex for a very long period of time. This has crossed seven lakh crores on a trailing 12 month basis. So these are some interesting trends which we are seeing and probably this time it is not a false alarm and hence we are expressing our view in the entire revival in capex and manufacturing through many of the short cycle plays, maybe bearing, maybe abrasives and so on and so forth. And also on the other side, we have some of the manufacturing names across various industries. So that is how we are, you know, kind of bullish on this space. And China plus one and defence are realities which are happening right in front of us. Companies after companies are looking to diversify their supply chains. And on the electronic side, we are seeing the kind of momentum which is starting to build up at the ground level, starting with mobile phones, going on to air conditioning and many other parts led by the PLI.
You have said that it is a good time to increase exposure over the next six to eight months. Identify for us which are those pockets in which you are increasing exposure.
Clearly one which we spoke about just now, the entire manufacturing sector. The other is the private sector financials. The numbers have been quite supportive. Valuations are also reasonable. And I think this year, the returns on banks and financial services should be a reflection of earnings growth. We are not banging upon any expansion on multiples, either on the price to book or PE and earnings growth reflection should be seen on the stock prices.
The second one is also a dark house called pharma. Initial signs the companies reported, but stock specifically, we are seeing improvement in US geography, which was under pressure for the last four or five years.
The price erosion, which used to be about 10 to 12%, has come down between 5-7%. So can FY24 be a dark house for pharma, we have to evaluate but I think this space has also started to look interesting. The third is that as a style, if you look at value has done very well over the last 15 to 18 months.
We have started to see early indication where we believe that value as a style has started to peak out versus growth. And in our view, over the next six to 12 months, growth at reasonable price should be a style to bet on. And many of the companies which were not doing well, either maybe in consumption space or consumer discretionary space, and the numbers have been quite strong for many of those which are leaders in their categories, should also start seeing momentum catching back again. So these are the spaces where we are looking at. IT, we believe that there will be one or two more quarters of pain before they bottom out on the earning side. And that is the time we will revaluate on the IT sector.
How much of the good news about a strong credit cycle and low NPAs is something which banks and financials are already pricing in? Because it is like a consensus view that banks are in a good cycle. And when there is a consensus view, then there are hardly any gains left on the table?
That is what I said that incrementally, what you are saying is absolutely right, that a lot of good news seems to be priced in and that is why we are not saying that, expect any big expansion on multiples. But our sense is that if the banking sector delivers between 15 to 20% earnings growth, it still will be better than the overall market earnings growth.
And hence, stocks should remain bidded and you should see stock returns being more a reflection of earnings growth rather than PE expansion. And I think in the environment we are in today, clearly the non-BFSI segment is still not moving into double digit earnings growth.
Even in this quarter, we saw 3.3% earnings growth for the 231 non-BFSI companies reported. This number was negative 11% for the last nine months in this fiscal year 23. So clearly, if we see opportunities emerging on the non-BFSI space, then a part of the capital will be reallocated from BFSI to non-BFSI.
But as we speak today, I think BFSI space valuations are not very-very expensive out of that and I think this space should remain bidded in times to come as well. But earnings moderation will definitely happen. And hence, return expectations should not be what we saw in the last 12 months but should be more moderated as we move towards the FY24 end.
The earnings expectations should be a bit more moderated. But I do not see any auto name in your top stock holdings or the preferred stock preferred sector list. Why is that?
We are playing auto through auto ancillaries and especially in the mid and small cap space, if you look at the broader market space, auto ancillary is the larger portion. But however, in our multi-cap, flexi-cap and large-cap funds, we are overweight on autos as a sector and I think that sector is doing reasonably well. Even in this fourth quarter, we have seen decent earnings momentum by the auto sector both on four-wheelers as well as two-wheelers
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