I mean, guessing the market is difficult. So, let us talk about the businesses you like and let us talk about what are you doing in this market after a 10-12% jump in the Nifty, what is your strategy? What are you telling your clients and your investors?
We started this calendar year on a somewhat cautious note noting higher the relative valuations for India and also the fact that we were simultaneously seeing some stress on growth, particularly coming after the very good growth in calendar year 2022, post the COVID recovery. So to that extent I think we started off on a somewhat cautious note and we felt that the market should be a bit of a languid kind of a market and may be might probably go through a combination of time and absolute correction. I think six months then, we have seen a couple of things one is that India had on a relative scale has underperformed over the last six odd months compared to global markets and that is what has helped some of our valuation premiums to actually kind of become a little more normalised.
So, one problem is in a way out of the way and alongside which we have also seen actually interest rates presumably going into a bit of a pause mode as far as we can understand and which is again a little better than our expectations because that was supposed to come about more in the second half of the year which basically means that PE multiple decline from year essentially is arrested and that problem at one level is out of the way.
The other issue was essentially around growth and we have seen some strains on growth in certain kinds of sectors, particularly on the consumption side.
The manufacturing and investment cycle is exactly where we had put a larger amount of our bets on but that has worked out quite fine in the last some months, some quarters.
Obviously, markets do have that tendency to extended things in shorter periods of time and probably valuations out there have turned a little less appealing now than what they were earlier, even though the business cycle and the momentum remains intact from a ground level standpoint. So I think we are kind of somewhat inclined to take money off the table of some of the manufacturing industries at this stage. Meanwhile, we see some value opportunities on the other side of the table. Consumption has been a laggard and probably coming out of the impact of interest rate hikes over the last one year or so and also the fact that rural demand has been a little weak. So I think we are putting our money a little over to that side so that is the kind of rotation that we are looking towards. Technology is another sector which has borne the brunt and pockets of value have started to emerge out there. All the mid-caps out there have held up pretty well so that is another pocket.
Banks in general are good from an earnings compounding perspective. We know that a strong cycle is somewhat behind us and we are looking, if we are at all thinking about interest rates going down in a year from now or so, I think it is better to look at then banks from a perspective of compounding at a steady rate rather than looking at it from the point of view of further valuation upside.
So I think by and large for some of the larger streams of the market, banking, IT, consumption, industrials, this is how we are approaching it.
Talking about booking profits in some of the manufacturing names, still looking positively in financials and consumption but within financial itself, what is the kind of rotation are we seeing in terms of large cap, small cap, midcap banks, public sector versus private sector? How are you moving the stocks within the financial space?
The collective wisdom as of now at least within our understanding and the team is that we probably can prepare ourselves for a downward turn in the interest rate cycle if not very soon at least getting into somewhere into the middle of 24.
I mean, we see relatively less reasons for interest rates to move up any further at least after the strong hikes that we have already seen. So that being that, then we are making our choices accordingly because we are trying to prepare ourselves for a somewhat benign environment as far as interest rates are concerned.
And then focus shifts towards once again private sector banks, probably trying to accommodate certain NBFCs as well because they become obviously the larger beneficiaries in a downward trending interest rate cycle.
So I think these are some of the obvious choices that we are making as far as BFSI is concerned. We have a mixed outlook as far as some of the non-banking, non-lending institutions are concerned.
There are certain pockets, let us say things like capital market-oriented stories which are still quite appealing from the point of view of value because they have gone through a fair bit of correction plus market indifference over the last four quarters given that things have become a little more softer out there.
So I think we are approaching some of those pockets with a value bias and insurance probably once again something which is quite beaten down obviously due to the risk that we have seen surface in the recent past. Those, I think are pockets of opportunity from a value standpoint.
