You have mentioned before that we are likely past the worst in this cycle. You have seen the launch which has just happened. The markets are in the green. But still global tensions remain. What is your view?
Harshad Patwardhan: I will give you a little bit of context. We became cautious on the markets at the end of September, October last year and we gave this call that war seems to be over in mid-April. Clearly one big risk that was weighing on the markets was the tensions in the Middle East. We believe that we are past the major hump. So, we do believe that going forward markets should do well. We are very constructive on the markets from a medium to long-term perspective. In the near term, we need to watch what happens in the Middle East and more importantly, we also need to watch what happens in the first and second week of July when the 90 days exemption that was given by President Trump comes to an end. That is something we need to keep an eye on in the near term.
Yes, we are likely past the worst in this cycle and largecaps seem to remain more attractive if we talk about the risk-reward ratio. But for people who are considering creating and drawing their portfolios for a long-term basis, what are the key positives and negatives with regards to sector specific approach? How should one create their portfolio?
Harshad Patwardhan: In fact, very recently we have tweaked our view. We held this view for quite some time that largecaps are more attractive compared to midcap and smallcap from a risk-reward perspective. But the kind of correction that we witnessed in mid and smallcap earlier this year, was quite substantial at the index level. At the stock level, even more so. We believe that risk-reward-wise, even mid and smallcaps can be definitely looked at.
We are advising investors at this stage to take exposure to the market through flexicap schemes. Obviously, for a week or two, we were suggesting that the exposure to the market should be done through an SIP, because the Middle East situation was volatile, the trade war is still there and we do not know the endgame there. So, gradual exposure to equity is what we are suggesting and, of course, mid and smallcap exposure can be better taken through a long-term SIP.
You have also highlighted before about the corporates and banks having a robust balance sheet. Which matrix attracts you more?
Harshad Patwardhan: That is in the context of the fact that on a relative basis, India’s macroeconomic fundamentals are probably at their best over the last 30 years at least. It was in that context that the balance sheet of the Government of India has improved a lot. The balance sheet of banks is robust. The problem that we had on NPLs, had peaked in 2018, and things are a lot better now in terms of cash flow generation, debt to equity ratio. So,the health of India’s banking system and corporate sector is extremely good. What we now need is some kind of a sugar shot in terms of consumption increasing and private capex improvement. That is the need of the hour for markets to do well sustainably from here.
While we are talking about the consumption space, again with the onset of monsoon, seasonality factor needs to be considered and also be watchful of. Diving deep a little more ahead of consumption, what is your view on agri related, fertiliser related plays as well as the seasonality factor on the whole?
Harshad Patwardhan: I think to an extent that has already played out. If you look at the way some of the sectors and stocks have moved in monsoon related segments, I think to an extent that has already played out. What I will be very interested in seeing is and for that, of course, we will be watching the numbers very closely and also management commentary, in terms of what happens to urban consumption.
As far as rural consumption is concerned, the commentary suggests that it has already started to do well for several months now. Urban consumption has been a problem, which has been pointed out by companies pretty much across the board. The big delta will come on the consumption side when the urban consumption sentiment improves and people start to spend in urban areas.
We believe that going forward markets should do well. We are very constructive on the markets from a medium to long-term perspective. In the near term, we need to watch what happens in the Middle East and more importantly, we also need to watch what happens in the first and second week of July when the 90 days exemption that was given by President Trump comes to an end. That is something we need to keep an eye on in the near term.
We held this view for quite some time that largecaps are more attractive compared to midcap and smallcap from a risk-reward perspective. But the kind of correction that we witnessed in mid and smallcap earlier this year, was quite substantial at the index level. At the stock level, even more so. We believe that risk-reward-wise, even mid and smallcaps can be definitely looked at. So, we are advising investors at this stage to take exposure to the market through flexicap schemes.
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