Siddharth Vora: The right perspective to look at the market is that there are multiple positives from the macro front whether it is rate cuts, inflation, strong growth, we need to look at it from the perspective that we are coming out of a sharp rally over the last three months. So, in my opinion, a lot of good news is already priced in and one needs to be a little cautious from here on given we do not have too much valuation headroom in India anyways.
We were always an expensive market. We corrected a bit and now we are back to an expensive market. So, all the good news is actually known by everyone, bulk of it is also priced in. In the near term, we could see some sort of profit booking or consolidation coming out of the strong rally and the lack of fresh upside triggers in the near term.
So, in the near term, we could see a marginally corrective market, but again that is a very short-term view. From a medium-term, we do believe that quantitatively we are in very healthy, favourable, and stable market conditions. All other sentiment indicators have been positive. We flagged off a market recovery outlook early like first week March, last week Feb, and that has played out really fast.
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We thought it would play out over 6-12 months, but it has played out over two-three months itself. So, yes, the good news is getting priced in faster and that is a good sign from the market, could see some narrow range consolidation in the medium term.
Earlier, you had mentioned that you had exited from the consumer discretionary pack. You had exited travel and tourism and were looking at themes like alcohol. Now, there is news about an increase in excise duty. The entire space is subjected to government policies. How are you looking at it right now? The other pack is IT, which is seeing a rerating. That is the only sector that is holding the fort in a market like this.
Siddharth Vora: From an IT perspective, even in my last chat with you, I had said that it is a tail risk play in our portfolio. We have had a 12-13% allocation for the last two-three months, despite all the globally negative cues, US risks, we still had IT because of its free cash generating nature and comfortable valuations on the largecap side, traditionally giving a low volatility defensive exposure to the portfolio.
From a volatility, quality, and valuation perspective, IT was fitting right in the quant strategy and therefore we have maintained our allocation and it is doing really well now. Where the rest of the market is seeing some sort of profit booking and correction, it is playing out the tail risk play, global play. So, both IT and metals are playing out well for us. They were contra positions at some point, but now they are turning favourable in the current markets cycle.
Coming to alcohol, we have only had one name in our portfolio for the last five-six months now – Radico. It has done really well for us so far and despite everything, we continue to maintain a 2-2.5% allocation to Radico and we will stick to our position till we see any major development from a quantitative perspective. Fundamental triggers can keep changing, but quantitatively from a factor standpoint, Radico continues to hold strong across multiple factors.What is your view on some of the capital market plays because last month specifically, there has been no stopping in most of these counters. How long can this run-up continue and what factors do you believe are at play for this?
Siddharth Vora: In our portfolio, we have a significant allocation to the entire capital markets play. It has contributed to our alpha for the month of May and June as well so far across the board right whether it is asset management companies, broking companies, some other platform companies, exchanges, or other capital market ancillaries, most of them have done well and we continue to hold this story.
Within our financial allocation, it is lenders, capital markets, and insurance, these are the three broad pockets we have allocated and within this capital markets holds the relatively higher allocation and from a quantitative perspective, we believe we are well positioned to ride the wave in capital markets. It is a structural story, but we are not structural participants. We will stay in the story till quantitative triggers stay intact. The moment that changes, we will be out of the story.
I can give you a fundamental view that for three-five years, this is a great area with visible growth, valuations are rich, cash generation is very good, but I know for a fact that if the market structure were to change, if there was excessive volatility, we would be the first ones to be out of the sector as well.
The right perspective to look at the market is that there are multiple positives from the macro front whether it is rate cuts, inflation, strong growth, we need to look at it from the perspective that we are coming out of a sharp rally over the last three months. So, in my opinion, a lot of good news is already priced in and one needs to be a little cautious from here on given we do not have too much valuation headroom in India anyways.
We were always an expensive market. We corrected a bit and now we are back to an expensive market. So, all the good news is actually known by everyone, bulk of it is also priced in. In the near term, we could see some sort of profit booking or consolidation coming out of the strong rally and the lack of fresh upside triggers in the near term.
So, in the near term, we could see a marginally corrective market, but again that is a very short-term view. From a medium-term, we do believe that quantitatively we are in very healthy, favourable, and stable market conditions. All other sentiment indicators have been positive. We flagged off a market recovery outlook early like first week March, last week Feb, and that has played out really fast.
We thought it would play out over 6-12 months, but it has played out over two-three months itself. So, yes, the good news is getting priced in faster and that is a good sign from the market, could see some narrow range consolidation in the medium term.
Both IT and metals are playing out well for us. They were contra positions at some point, but now they are turning favourable in the current markets cycle.
From a fundamental view, for three-five years, capital market play is a great area with visible growth, valuations are rich, cash generation is very good, but I know for a fact that if the market structure were to change, if there was excessive volatility, we would be the first ones to be out of the sector as well.
