The visible risks are limited, but nobody knows what will happen on geopolitical issues like the Israel-Hamas conflict. But there are discussions going on everywhere. We also have to keep an eye on the situation in Bangladesh. Having said that, big market corrections are often triggered by sudden or unpredictable events. On the Indian stock market, there is no significant risk.
Can you name three themes that you believe in the most?
1. Private sector banks, which are benefiting from consumerism and are currently undervalued. If interest rates come down, the case for these stocks could be even better.
2. Pharma stocks look good given their growth potential and reasonable valuations.
3. Asset and wealth management industries, as rising wealth leads to more savings and investments.
4. Select consumer stocks, especially in the discretionary segment, offer good opportunities.
How about capital goods stocks? Why high multiples are good in this sector
Yes, but some of the companies are very high quality companies. If their valuations come down in this correction, they will again provide good entry points.
What kind of returns do you think investors should expect in the next two to three years?
We believe that the next two to three years will see low to medium returns. It will definitely not be 30-40% CAGR like before.
How do you view the real estate sector?
Real estate is a long-cycle sector. While some sectors, like parts of Mumbai, are getting very expensive, there is still hope that interest rates will be cut. Real estate investments for self-consumption are promising, but as an asset class, equities are still better.
Do you see a case for investing in real estate stocks?
We prefer housing finance companies and construction stocks. Construction stocks will have more importance when infrastructure projects are completed in 2024.
What is your view on the consumer sector?
You have avoided them in the past as well, citing high valuations. Now some investment stocks are more expensive…
Consumption is a huge theme in India, driven by a large population and rising spending. However, paying 60-70 times PE for a company growing at 10% is not a good idea. One should look for reasonable valuations given the development potential.
How do you view the mid-cap and small-cap segments, which have not given very good returns recently?
Mid and small caps have given better returns than large caps in the last few years, but the gap will reduce. In some 3-4 year timeframe, they may still give slightly higher returns, but which stocks you are picking is very important.
You had a 15x15x15 rule for investing with 15% growth, 15% ROE at 15x P/e. Are you rethinking your formula given the current market dynamics?
We are still looking for 15% growth and a minimum ROC/ROE of 15%. On the PE side, our target is an average of 15x one-year forward PE for the portfolio. However, it is getting harder to hold on to that as the market moves.
What is your view on PSUs, especially sectors like energy and defence?
Not all PSUs are overvalued. Some companies like PSU banks and some energy and metal companies still have room for appreciation due to strong fundamentals and high demand. For instance, the power sector is also benefiting from the economic growth and infrastructure drive in India.
Is there scope for a big sell-off in India?
India did not see much decline on Monday as compared to the global market. But on Tuesday it bounced back sharply but closed with losses. This is definitely a time to be cautious. The good thing is that our macros are good. Monsoon should also be good, so we can see a good festive season. Currency and yields are also quite stable, but the market will remain volatile and will take time to stabilize.
How much more correction can we see?
There will not be more than 10% correction from the top. We have already seen a decline of about 4% from the top level. Some specific stocks which were highly hyped may fall more, as this time too the decline has been the biggest here.
Every decline after the pandemic is being exploited. Are you relieved or worried?
Our market fundamentals are improving a lot. Nifty is trading at around 17.5 times PE on FY26 basis, which is only 5-6% higher than the 10-year average of a good level of 25-30 times. So the uptrend has driven profit growth to a large extent. Overall valuations are quite reasonable and some smaller, theme-based companies have also rebounded.
Is “buying on dips” still a good strategy?
I believe “buying on dips” works well in a rising market, but investors need to be cautious.
Where would you recommend selling on every uptrend?
Some sectors, like public sector defence companies, are trading at 17-18 times sales, which is very high. Similarly, companies in the railway and EV sectors have seen an unreasonable surge due to some announcements.
How do you view the current sell-off?
It is a bit worrying. These big moves in global markets, especially currencies, are never good. They shake the confidence of global investors. The risk premium goes up. Also, we have seen a big move in equities some time back. Most markets have recovered from the initial shock and US futures are also giving positive signals, but it will take time to stabilise.
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