Life has changed. Profile has changed. Have portfolios also changed?
Not really. I think since one-one and a half year generally I have been in favour of domestic companies rather than global companies and I think that has not changed. Our preference for sectors like banks, industrials, cement or auto versus global sector like IT and metals is broadly where we are.
Are you surprised with the way our markets have made a comeback almost 1500 points on the Nifty, 4000 points on the Bank Nifty?
Not really. I think a lot of it has to do to my mind with two or three things. One is your external account situation obviously has gone through a sea change because energy prices are down, service exports have done well. The dollar itself has weakened.
I guess the single most important variable for emerging markets, even probably bigger than Fed is the dollar trajectory and DXY has come down from 114 to 100 now and it has gone back to 103 odd. So the fact that dollar has weakened, bottom up we have a service export story going.
Your biggest import energy is down 25-30% so the macro outlook especially on the external accounts has substantially changed for India so in that sense, I am not really surprised that the market has displayed a bit of strength recently.
Just going by the kind of data we have accumulated with respect to the earnings season gone by it seems that majority has come-in in line with what the Street was expecting. How have you assessed the overall earnings performance and do you believe that this strong earnings growth is likely to continue?
First of all, when you see the situation globally earnings coming in line is actually a good thing because most countries, most economies, most markets earnings have actually been downgraded including the big ones like US over the last 12 months.
I think this is one of the reasons why the Indian market has done well from both the last 12 month perspective and the next 12 month perspective. I think India’s earnings are proving to be much-much more resilient and robust versus most of the other emerging markets at least.
So given that a lot of our earnings are coming from sectors like private banks, FMCG, cement, telecom and utilities; I guess 60 to 70% of our earnings look reasonably safe over the next 12 to 15 months and that I think kind of gives India a bit of premium globally.
I think most of the earnings when you look at Nifty 100 or Nifty 200 are coming from market share gains. So we are not betting that India’s growth is going to be phenomenal because obviously when the globe is slowing down that will affect India’s growth as well. But if you see the big components of Nifty 100 earnings either they are getting market share like private banks or like telecom it is a consolidation play.
So there is a kind of bottom up phenomenon here about earnings rather than saying that India’s nominal or real GDP is going to escalate too much.
Also, the fact that from 2013 to 2020 till the COVID period you had a very weak base for banks, autos, capital goods so that tailwind still exist just in terms of reversion to mean which may last for a couple of years more.
So I think all this is leading to a situation where in spite of a lot of patchy data globally and in a normal world a global slowdown does affect India in terms of both the economy and the corporate earnings but this time that link is relatively weak to my mind.
