Anand Shah, Head of Portfolio Management Services (PMS) and Alternative Investment Funds (AIF) Investments at ICICI Prudential Asset Management Company, on Monday (March 4) said metals were a laggard throughout 2023.
He attributed this underperformance to challenges faced by China, the largest consumer and producer of steel, particularly in the real estate sector.
Despite the challenging year, Shah expressed optimism about steel, emphasising the reasonability of valuations.
While talking to CNBC-TV18, he said ICICI Pru AMC has been overweight on steel and expects a positive shift in the industry's global profitability over the next decade.
Shah noted that as China prospers, its competitiveness in the international market is likely to diminish, especially as it transitions from blast furnace to electric arc furnace, making it less competitive on pricing.
It must be noted that shares of steel companies fell on Monday after CLSA downgraded certain stocks with stretched valuations and weaker industry spreads compared to their nemesis.
Further, commenting on the broader market trends, Shah acknowledged the performance of state-owned businesses and banks over the last 3-4 years.
He attributed their success to valuation comfort, making them relatively cheaper than the overall market.
However, he cautioned investors to be mindful of both market upsides and downsides.
Shah observed that recent rallies in cyclical stocks, driven by superior earnings growth rates during an upturn, also come with the risk of sharp earnings degrowth.
The ICICI Pru AMC's head of PMS and AIF Investments further underscored the importance of stock picking in the current market scenario.
He stressed on the need for investors to be selective in choosing the right segments and companies within those sectors.
"Investors should consider both the upside and downside risks, given the evolving dynamics in the market and individual stocks," he told CNBC-TV18.
(Edited by : Shoma Bhattacharjee)
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