Gopal expects economic activity to pick up in the final months of FY24-25 to enable us to close the year with a GDP growth of 6.5%.
What worries him however is tepid credit growth – we need to see lending activity pick up for gaining confidence in visibility of growth momentum into FY25-26. He is looking for the rate cut cycle to commence soon coupled with some relaxation on lending curbs imposed by RBI on banks –particularly lending to NBFCs.
Large cap valuations have corrected sufficiently for him to see value in many now.
HDFC Multicap Fund completed 3 years with strong top quartile performance over its 3 year period and a huge 8% alpha over benchmark Nifty 500 TRI. Gopal attributes this outperformance to early entry into industrials and consumer discretionaries and more recently, a contrarian call to go overweight IT at a time when sentiment was very low for the sector.
The IT call has worked very well in 2024 and Gopal is now turning cautious as valuations no longer look attractive.
Fund performance in 2024 suffered on a relative basis though it continued to deliver alpha, as some key stocks in the portfolio underwent time corrections and are now emerging out of those consolidation periods. Gopal stresses that he does not chase momentum and prefers to buy and exit on the basis of margin of safety, which he says is key to delivering long term outperformance.
In recent months, he has been taking profits from industrials where valuations have run too far ahead and has added exposures in healthcare, oil&gas and banks, where he finds good value now. Large private banks at current prices offer attractive long term compounding opportunities.
As Government accelerates infra spending in 2HY24-25, Gopal says power, roads, ports, railways look very interesting.
Two contrarian calls he has taken recently include cement and consumer staples. His dark horse pick for 2025 is NBFCs – they have gone through their corrective phase and prospects can turn for the better in a more benign interest rate and liquidity environment.