Global brokerage firms – from CLSA to Macquarie – believe energy costs pose a downside risk to Indian stock markets. Having said that, since the beginning of the month, we have seen the return of the IFIs. In the last two days alone, there have been purchases to the tune of Rs 1,000 crore. Do you agree with the brokerages raising red flags due to pressure on margins for India Inc which expects stocks to underperform from here?
We’ve had a really good rally over the past 15 months and obviously there has been a big swing in economic activity even after Covid 2.0. The economy is in tears and doing well and recent channel checks have shown Diwali to be pretty good. However, part of it would have already been discounted due to the performance of the stocks over the past 12-18 months.
Maybe we’re stretching a little bit at the start of fiscal 24 and reducing some of the inventory at that level. To this extent, there would be some consolidation in the market which is expected as we have to see next quarter or two of economic growth and also company performance in this volatile period, due to the pressure on margins and the soaring commodity prices. This is more of a consolidation phase than a correction phase, unless we have some sort of Black Swan event again – which could be a global or national event.
It could be more of a consolidation phase between 16,500 and 18,500 levels and maybe wait for earnings growth of one or two quarters and move on to fiscal 24. ‘a brokerage, I would say it has more to do with how China has performed over the past 12 months and whether it makes sense to move money from India to China, given that the Underperformance has been very glaring, if we see the YTD performance of the Indian indices against the Hong Kong or China indices. It has more to do with transferring money from India to China. But on a stand-alone basis, if the economy is doing well and the momentum continues beyond pent-up demand, then it is more of a game of waiting and watching than just selling on the market. Marlet.
Where do you think the money is to be made? What are your big sector overweightings and underweightings?
I maintain that not all companies will deliver the type of valuation they trade at and this was clearly seen in the second quarter numbers where there was volatility around growth or margin depending on the sector. and companies and how they delivered in terms of execution.
Metoo companies will not benefit from this. Only companies that are able to get through these difficult phases of supply chain problems, soaring commodity prices, inflationary pressures and having pricing power to some extent, manage margins while maintaining market momentum. growth, should be doing well now. I would say that a strong brand or a company with strong pricing power or a strong business model that has an edge over others would continue to do well while “metoo” companies will struggle to outperform quarter after quarter because that this reflationary trade where everything was down, the economy was zero and all stocks managed to go up due to the recovery and global liquidity and local liquidity is over. Now it will be a difficult task to make money, make stocks profitable and this is where a well-governed company with a strong business model will thrive.
If there’s been one big theme we’ve seen over the past couple of weeks, it must be the IPO Gold Rush. The largest of these, Paytm, is expected to be listed on Thursday. Then there will be the next wave of IPOs from PharmEasy, Delhivery, Mobikwik, OYO Rooms, Ola Cabs. What is the right weight to have on these type of technology companies in your portfolio?
I would say we’re in a big digital super cycle. Especially after Covid, the mindset of businesses changed and many realized that there had to be an Omni channel type model, rather than just having a brick and mortar model or having than an online platform model.
It is clear that this is also a learning curve for us as new companies and new topics are listed in the market and therefore we have to be careful and careful. But if the theme is good, if there is scalability of the business model, it should work. We’re trying to snack, try to save money, wait for the numbers quarter to quarter, and possibly take a bigger call – maybe not now but after six or 12 months, to see if this valuation is really warranted for the growth of what they are offering or if it is just the IPO frenzy.
Obviously all internet companies might not do well maybe two years down the road, but there would be one or two big winners who would either become the star of the market or the winner of the market and could be a part of Nifty as well! It’s more of a basket approach, of not missing any story to start with but at the same time being very active, agile and careful to make sure it doesn’t impact your portfolio in case the business does. bankruptcy after 12 months.
In your portfolio, financials have the largest weighting at 30%. What is your assessment of this space? On the one hand, you have, which goes one way – up-up-up; are there very optimistic comments from HDFC wanting to partner with fintechs, ICICI’s blockbuster list and at the same time PSU banks are coming back?
Among financials, we first need credit growth, at least on the individual side. We are seeing a return to growth rates, especially during Diwali. The channel checks we did found decent activity on the retail side, including mortgage lending. However, growing business credit will take longer. Even the growth of the working capital cycle may take longer, as most businesses are no longer in debt. They are becoming very agile with the digital initiatives they have taken.
There is a deleveraging mood among businesses and analysis of the top 20 companies would have shown that they either had no more debt or reduced their debt as the opportunity presented itself. Even mid-sized companies are trying to reduce their debt and raise capital in the market because there is a lot of capital available. Good companies are also able to raise capital.
On the MSME side, I would say that there is no incentive for many banks to go for higher credit growth as there is a risk of NPA or asset quality issues. So retail is the one place where there’s really going to be a huge opportunity for growth and banks that are able to embrace the retail side of the story should do well. Aggregate credit growth may take time, which may cause the rate of credit growth to decline relative to the aggregate numbers. But retail banks and NBFCs will post good growth figures in the quarters to come.