You being a fund manager would definitely talk about long-term strategies, but given the market juncture right now, it is important to know what is going on in your mind and although the market on Thursday has erased the losses and is in a very range-bound and flattish territory right now, what sense are you making out of the market post Fed policy announcement?
Sandip Agarwal: We are seeing that a few things have played out very positively. For instance, the RBI’s upfronting of the rate cut along with liquidity flush, is number one. Number two, we are seeing a very clear trend that if you leave aside the Middle East problem which is currently there, crude is on a structural downturn for a multiple of reasons, more discoveries, and also everyone is in a race to sell more and more crude and there is a renewable energy demand.
So, those things are playing in favour of India and that also reflects on the current account deficits. We have seen a period between 2010 and 2024 when Nifty returns were good because of the consistent rupee depreciation. The net return in the hands of the FII and FPI was quite low. Now we believe that because of the crude and because of the good GDP growth and also the more value addition which we are seeing in the electronic imports, we are in a situation where probably we will not see a structural sharp decline in the Indian Rupee and once this is recognised by the FIIs and FPI, a lot of money will come to India.
We are expecting a flush of money in India because all other factors are very positive, any which ways for India, the growth rates and everything. Second, we are very positive on the capex issue. A lot of private capex has started picking up. It is not showing in the numbers currently, but it will start reflecting with a lag effect. We have been on a road trip to industrial towns in the country and we are seeing a lot of positive momentum on the private capex picking up.
Where do you believe this money will get parked? In which sectors is now the time and where is the valuation comfort?
Sandip Agarwal: It is a very good question and a very tricky one. But let me put it this way. Some of the capital goods stock may look expensive in the near term, but if you see the opportunity of capex in next four-five years whether it is in auto ancillaries or in industrial machinery, and all, you will see a lot of demand there and the multiples may look expensive now but they can create lot of value, so that is one space.
Secondly, the financial intermediary space is very hot right now. But if someone is taking a three- to five-year call, there is a lot of money to be made there on the non-lending side. Even in the private bank space, if you leave aside the next two quarters where there will be some NIM compression, we are seeing a lot of value in the longer term because if the economy is going to do well, if capex spend is going to happen, then banks will see a very good pickup in the credit growth as well. So, that is another theme which can be there. The government is focused a lot on the water theme and there is a tremendous amount of work happening on the water side. This capex, water, chemicals, cement, banks, and non-lending ones also, these six things are very attractive right now along with power. In power, the whole ancillary setup of the power like cables and transformers look very good. But we have to see at what price they are available and whether there is value or not. If you end up buying something very expensive, all your returns for next three years are already built in. We have to be a little bit careful, but these six-seven things will do phenomenally well in the next four-five years.Any specific reason when we look at consumer discretionary and especially the next six months of this calendar year, where we will see a lot of impact coming in and consumption going up because of the rate cut scenario? Now that we have seen a boost to the consumption sector, is there any specific pocket where you are focused?
Sandip Agarwal: The problem is particularly on the consumption side, the challenge is that our per capita income is consistently going up and when per capita income starts going up, then people try to generally upgrade. So, the volume may not go up that much and the value may keep on going up, but additionally, our net population addition has also started seeing a little bit of deceleration. So, the key theme now will be more on the per capita income side.
All your services which are on the luxury side, like costly car dealerships, the car services, the expensive watches, QSRs and all those things should do phenomenally well in my view. India is more of an increase in per capita income theme rather than only pure volume population-led theme and that is a big change happening on the consumer side. Within consumers, you will have to shift your portfolio towards expensive stuff that are proxies to increase in per capita income.
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