This very sharp correction has made a lot of participants nervous regarding the geopolitical issues but purely on valuation terms, what did you make of that? Do you think the market entered a comfortable zone for long term portfolio construction around those levels or on Tuesday lows?
We must clearly understand that the market works in two ways. In the short term it works on feelings and whatever event based things are happening and reacts on those matters. In the long term, it has started catching up with the fundamentals. Post Tuesday, the market was at a lower level and again started to rebound. Was it the right time to invest? I would say yes, because the long-term fundamental story of our country and these markets are still intact and we believe that from one year, three year and five years’ perspective, whosoever is looking at these markets is going to make money as the growth perspectives are still intact. Growth is happening and we believe this is going to be the future growth story which will bring the market valuations to a positive territory.
You guys advise some high net worth individual clients and the HNI category of investors have become pretty influential over the last couple of years and quarters. Clubbed with the retail participation, we are almost dulling out the effect of big FII selling for over seven-eight months. Are they sitting on cash, are they comfortable buying in the corrective phase?
Yes, definitely they have cash available and as and when the opportunity arises, most of these investors are looking for the opportunity to invest in these markets. To be really frank with you, if you really look at FII selling, and then you know buying is positively coming by and large in our country.
Equity is an asset class which is giving reasonably good returns and people are absolutely positive in growth stories, thinking that if they are going to stay, from a long-term perspective they are going to make better or more money than any other instrument or any other asset class and that is what is happening. So intermittently, whenever sentiment impact starts overpowering these markets, you will see a reaction. People stay and wait for the right time, waiting to see the cloud of uncertainty fading away and the moment it starts happening, they start investing gradually in these markets.
The UP verdict in favor of BJP, at 270 was higher than expectation. The Street was estimating around 220-230 seats at best. In some of the other state elections also, BJP win came as a surprise. Do you think it cements the BJP’s position now and gives them momentum for 2024 as the market will start looking for that?
BJP win in four out of five states has definitely started giving a positive trend and positive mindsets amongst people in the market as well as politically. It is going to help in terms of the 2024 election. These are positive trends but political uncertainty and certainty are very much different. In 2024, what kind of mood is likely to be there amongst the people who are going to go for poll is also going to matter but right now, most people are happy, positive and are pro the policies which have happened and that is being reflected in the political result.
I would say part of it has already been discounted initially because in the market grapevine, people were talking about how in a few states this government is going to get positive results.
Can you share some themes or spaces or sectors where your firm has seen big buying interest from influential investors in the last few weeks? Which are the areas where positions are being built where margin of safety is better in a 12- 24 month horizon?
From a sector perspective, the growth story is still intact and the long-term trend for most of these sectors which are presently available in the country are going to grow but immediately we are suggesting from our research point of view. There is an infra story which is going on and so infrastructure related sectors are going to do good. Financial stability will start happening and the moment it is going to happen, people will start looking at the financial sector. So, banks and financials is another sector where people will start working on.
The domestic consumption story is also going to be very strong. The specialty chemicals story is already there in the market and it will keep on strengthening. So these are the stories which are going to be there. Defense is another story which is happening in the market because of various spending by the government on the defense sector side. Then there is the metal story. Capital market related activities are starting to happen. Investment towards capex going to kick in a few of sectors. So, capital market related or capital sector related stories are going to be there in this market.
Look at how the stock of BSE has hit a lifetime high today, CDSL is at a fresh 52-week high . How is the health of the market infrastructure industry? How durable is this shift from hard asset to financial assets?
In the past two years, most of these market related players who have really done good job and service to the clients have increased their clientele base and in turn also got a huge volume. A Rs 40,000-50,000 crore per day delivery base cash market turnover was happening. It has gone to almost Rs 70,000-80,000 crore per day volumes. A similar trend has been seen in derivative market turnover space.
Lots of activities has happened and every single player has multiplied and earned reasonably well. I believe, fundamentally and financially, everyone’s position has strengthened.
Do you think the odds look better for the largecap universe to be held in larger quantities in your portfolio or do you think smallcaps and midcaps have also turned attractive now because of the correction?
We always suggest there has to be a balance between large and midcaps, not only midcap, not only largecap. But having said that, since there is a risk associated with these large and midcaps, one has to understand very clearly.
The second thing is there in India, our long-term story is going to stay and persist with mid and smallcaps because lots of new players who are coming and growing in the system and becoming largecap over a period of time. That is where one will be able to catch higher growth and in turn higher returns if you are investing. The issue is one has to keep invested and stay invested in those kind of good stories or good stocks for a longer term period.
Coming to largecap versus midcap, my view is going to be largecap first because right now much uncertainty and geopolitical tensions are there as well as lots of events or impacts. One has to have a largecap tilted portfolio for a few months till the uncertainties fade away from the sight.