Give us a sense of how you are positioning your portfolio amid all the geopolitical uncertainty we are seeing right now. How much of it is deployed? How much are you sitting in terms of cash?
Christy Mathai: So, clearly this economic backdrop is pretty conducive compared to what it was, let us say, about three or six months back. What we have seen is the government is really pushing the pedal on growth and we have some indication of it as we look at the 4Q GDP numbers as well. Also, the inflation is clearly moderating and we do not think the current geopolitical issues would really change that materially unless the crude were to go really up which we do not foresee in a normal case scenario and against this backdrop, what we have seen is RBI is infusing liquidity and frontloaded quite a bit of interest rate cuts, so this should propel some sort of earnings growth going ahead, the CRR cut of 100 basis points was particularly positive, it has a multiplier impact on the economy because the lending increases assuming the bank do not park it in G-Secs and they start lending again.
So, combination of these factors we are fairly positive on the EPS trajectory going ahead and this environment is very good for the private capex to grow as well because you have had interest rate cuts. The corporates can borrow cheaper. At present, they have significant cash on their books. But given the tariff uncertainty especially with respect to Trump and so on and so forth, there is some issues on that front.
But broadly, we think all the signs are right for the earnings growth to slowly pick up. Our concerns chiefly is on the valuations, given the 10% or more rally that we have seen in the past couple of months, valuation is the only concern for us and hence possibly, we are not looking at a great set of returns one-year or two-year out. But apart from that broadly earnings trajectory should be positive.
But any new sector where you believe the earnings momentum can really take the sector higher from the current levels because a lot of sector churning is already underway. We have seen the runup in financials. Other than that, of late, it is the IT, select healthcare counters that are making a comeback.
Christy Mathai: So, in terms of earnings, possibly where things can look up from our sense is purely looking at the IT pack. We have had possibly very near-term rally, so to say in it, but what we are looking at is most of the FY26 numbers have been dramatically cut, it is possibly in the vicinity of maybe 3% to 5% growth which possibly the managements are guiding, but we think this number at least maybe FY26-27 could be much better owing to the fact that the technology spends possibly can come back because we are sitting over a three years of absolutely no IT spends especially on the services part by the major banks in US or manufacturing sector.
So, there is a possibility of that picking up, plus the margins also can expand given some of the cost levers that most of the IT players have in hand. So, we think you that could be a possible place where there could be earnings surprise as we move ahead.
But broadly, if you were to just think about the consumption theme also, where we are invested through autos primarily which is also a play on interest rate cut and there could be better credit growth in that particular sector, which is at present not happening, so some of these two-wheeler volumes especially in the mass segment which have been hit by inflation for a long time which is now moderating can be a surprise going ahead.
While we are talking about consumption, let us talk about an ancillary that is cement in a way. Give us a sense on where you are seeing cement as a sector moving ahead because we have seen benign raw material prices.But on the other hand, you have the monsoon overhang, so that seasonality is coming into play. Where do you see the cement sector headed now?
Christy Mathai: So, we are invested in cement sector as a whole through one of the companies which is more contained to a specific geographic location where the price hike in the recent past has been good. But see over the course of the year you will have a usual seasonality play out, typically monsoon season you will see some demand moderation which picks up as you go ahead in the month of October or towards the Diwali, so that is the usual seasonality.
The issue last year was one of a kind because you have had significant demand moderation along with fierce competitiveness because a lot of large players who have sort of consolidated were pushing up the volumes in through some of their acquired entities, so that was what is depressing the prices to a four-year or five-year low. Now, we see that improving which is sort of a big positive for the sector as a whole. Monsoon seasonality, it usually happens, so there is nothing concerning as such and the government capex and slowly the demand recovery in, let us say, the housing segment should be a key driver as you look at the cement stocks.
We did touch upon select sectors there and also you did share your outlook on the earnings front, but if I have to ask you top three sectors where you are most bullish on which one those will be and the three sectors you believe will be languishing for some time from now to participate in the rally for Indian markets.
Christy Mathai: So, clearly where we have large allocation are clearly the banks, financials which is not very different from when you look at an index perspective. But the point is here we think until now if you were to look at the whole people visualising the rate cut cycle, they were expecting an extended rate cut cycle, but with the stance change and the commentary that you hear looks like there will not be further rate cuts so what you will have there is a one or two, maybe three quarter impact on NIMs, but CRR cut is positive, so that is on the extreme near term in terms of what will happen. But otherwise, we think the credit growth should normalise ahead.
IT is at 9%, sub-9% at the moment and the deposit challenges are slowly going away. So, you should see that credit growth pick up as you go through the year, possibly in the second half, so 12-13% is what we think the long-term on credit growth has been for a very long period of time, we do not see that change, and within that the private players would have their play with a slightly higher growth rates, so that remains a pocket which is very attractive to us and reasonably valued in our view.
The other sector as I said was it and some bit in consumption which is especially the auto pack with primarily play on two wheelers, so that is broadly our sectors where we are reasonably positive on. We have picked up on some of the financial plays as well, something like an insurance which we have added in the recent past that also looks pretty attractive when you were to really think about long-term growth because there is significant protection gap as we see it in the life insurance space and the valuations are not so expensive.
The pocket where we are not so convinced about is again this is primarily driven by valuations. You just look at some of the cap goods names, some of the names which are driven by order book especially dependent on how the government spend would be, those are the pockets where there could be room for disappointment going ahead in a sense and some of the capital market linked themes where there could be impact in one of these years, we cannot really pinpoint which year it would be. So, these would be places where we would be a little bit wary off, but by and large positive.
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