The kind of momentum that we are witnessing now do you also see this going ahead in few more quarters or maybe the last second half of this calendar year? How do you read this particular moment of the market?
India is much better shape than what is around the world. So when you are looking at large economies going into mild recession or into recession or the growth rates not being that great, I think India is looking like the sweet spot. You see current account deficit numbers; you see the stability of the currency, you already witnessing some inflows coming from the FII side. I think all put together, it looks like India’s balance sheet is in good shape. Your current account deficit is within control and also the inflation and interest rates are also moving in the right direction as expected for growth to resume. So I think in all aspects, it looks like India is up for a good growth story and that is what we are witnessing even in the companies who are demonstrating good growth capabilities on ground. Do you think the momentum in the market is right now shifting from value to growth? In fact, towards quality stocks also which has I think, always been a very underlying flavour and theme of the market. But what are your views in this shift in investment style trends?
There are cycles in the market between so-called value and growth and quality. I think as you really see inflation coming off, the interest rate cycle coming to a pause, if not on the cutting side, I think that leads to a significant amount of momentum on the growth side of the macro economy and at the same time growth side of the market. Also, we have to keep in mind when overall economic scenario is not that great and if some of the companies are delivering on growth that disproportionate flows on that side. Let me just give you one simple iteration. From 2016 to 2019, you had a GDP cycle which was more about 7.5% growth rate coming down to 4.5 even after that you had some of the good great stories, quality stories doing very well in the market. And this is what we are seeing again, starting now that as inflation cools off, your oil is under control, macro economy looking good, the flows will move towards growth side.
The inflation looks like cooling off right now. It is much below the comfortable level or the upper limit of RBI now, as we can see and there is also a rate hike pause. But then how do you see it rolling out further because the kind of estimates that are coming up regarding monsoon that could be a dampener. What is the way ahead when we talk about inflation and a rate hike pause?
I think the good news is that world economies are slowing down. You have US slowing down, entering into mild recession. Even for that matter, if you really see China, people had talked a lot about reopening trade and economy doing very well. But if you see the data points, I think China’s recovery is also uneven and the growth rates are not as expected. Hence, you have significant corrections in the commodity side of the market which generally boards well for us because a large part of our raw materials be it midcap or small cap companies large part of the raw material is linked to oil-linked derivatives or the commodity cycle.
Hence, as you see commodity cycles coming off, I think we should be in a much better shape as compared to the rest of the world. So I think inflation is really-really coming off from the fear of what we had, let us say 6 to 12 months back. Interest rates are in a pause and this gives good room for companies to go for bigger capex programs and generate growth in the economy.
And what about FII inflows, would you call it a party that is going to sustain and be over there for a long time?
Difficult to say but if you really see India has a good weightage in the MSCI basket now. Most of the reports what I have read, it looks like they are underweight on India for the valuation purpose. I think after two years of I would say, time correction, valuations especially on the growth and quality side have come into the favourable range. And as companies execute, I think stock specific you will see huge inflows coming.
Let us talk about the sectors which are on your radar or your focus is there in terms of increasing your investment or maybe picking up quality stocks and companies.
I think it is more about being stock specific in each and every sector. In fact, we are finding over the last two quarters that not all companies in a sector are able to deliver good growth or good margins vis-à-vis the valuation where they are. So it is going to be a game of who takes it all. Profit pools are shrinking to few companies and whosoever is able to demonstrate good growth visibility as well as good margins, I think they will win the race. You take any sector, I think if there are four companies, two will deliver you good numbers, three will be laggard in some sense on the other. So it is more about stock specific and wherever we find good growth stories let us say in excess of 15-20%, we would like to work on that.
Coming up few quarters now, do you think it is going to be a quarter for midcap and small cap or you think large caps are going to dominate or maybe it is going to be a growth story all across market caps?
I think it would be a mix of both. As I said, companies who are able to deliver on next two to three quarters cycle and are able to generate those competitive returns, I think they will really get a fair share of flows.
And we have seen in this quarter as well that there are some hits and some misses. It is a mixed bag quarter and wherever companies have delivered, they have been given thumbs up from the investor community. Many sectors are opening up, many sectors are doing well. We have to find those best winners in that sector.
