.What is happening at the market at the moment? There is no positivity at all, there is no buying interest and despite a lot of negatives being out of the system, the market is just failing to go up?
I would not agree that there is no buying interest. There is a lot more selling interest as opposed to the buying interest. If there were no buying interest post the Budget announcement yesterday, immediately the market would not have risen up so sharply. Domestic investors remained bullish, they are willing to buy. The issue is that FIIs have been selling heavily probably because of the Adani related stuff but domestic investors can only buy if they sell something else.
Remember the mutual funds and insurance companies do not keep too much liquid cash to go and buy and they are fairly reasonably well deployed. So if you take at a delta it is only 5% of the mutual fund corpus which is available to buy and a lot of that got deployed when the initial Budget announcements came and the Budget was received very positively by the entire mutual fund and the corporate sector., So they went in and bought.
But because of the news around the Adani pack in terms of the uncertainty as they called off the FPO, FIIs which had significant allocations naturally panicked. There was also the related impact of banking exposure to that pack. So they came and started selling. For them to sell is easy because they are selling from an existing book. To buy either one has to have cash and or sell something else to buy.
Given it was an all around Budget. It would have been a very hard decision to say the Budget was negative and so I am selling this sector and raising cash and buying something else. The reason is that the Indian market today is almost fully deployed and there is a positivity as fresh inflows come into mutual funds from investors that will continue to buy.
But for FIIs to turn the tide, they need clarity around what is going to happen with the overall Adani pack. As you know, it is not just one sector, they have companies spread across multiple sectors and also the fact that if you take an ETF, if there is a heavy investor in an ETF and because of the Adani view, he is taking a slightly negative view on India. So when he withdraws money from the ETF, all the stocks in the passive index will get sold and not only the Adani pack.
There are specific hedge funds with specific exposure to those which were selling but if they face broad passive outflows on India ETFs, that will mean selling across the board. So it is a combination of that. This is a temporary phase till the uncertainty gets resolved around this and you will see the markets bounce back in the next few days.
Do you have any exposure to Adani Group of stocks in the debt or also in the equity schemes?
I am not allowed to talk stock specific but I can tell you that we do not have any exposure in the debt side. On equity, we have some but that is like I said, I cannot specifically talk stock but it is very probably the lowest in the industry in terms of exposure..
So I am not getting into stock specific discussion. Now, there is a fear that if something happens to a large corporate group, the collateral damage could extend to lenders, whether it is banks or entities which have given loan to Adani Group of companies. Banks have said they have no problems as they lend against assets and asset prices have not come down. Do you think this fear that the problem in Adani Group could snowball and hit lenders?
It is absolutely farfetched because most of the Indian banks’ lending is to project cash flows – whether it is a cement company or a port company or an electricity supply company. They are well and ring fenced from this. Now if the promoters have pledged a certain amount of securities and borrowed against them, those may be a few NBFCs or maybe overseas entities and that will impact the stock prices because it is margin selling.
But the cash flows of the group against which the banks are blended, are all servicing existing servicing companies. So the idea of any systemic impact on the Indian banking sector because of this is farfetched.
In markets, there are always cycles. Last year, if you bought into growth stocks, you would not have made money. If you bought into growth stocks immediately after Covid, you really hit a home run. Now, is it the turn for quality stocks to make a comeback?
I do not fully agree there. I think that the growth momentum in the Budget has not got respect from the market yet. And the fact that the safety oriented stocks like the ITCs and the IT sectors are getting money is just that the India positivity is coming through and so the allocation is there.
But if you recollect, IT has been under pressure and so the valuations there looked reasonable. So, they are a good buy. But the developing field for the market is of a rebound of growth in India because most of the Budget related growth impetus is still not dependent of the international situation.
Internationally, there is going to be a slowdown but India is going to be a growth economy. And from that point of view, I do not think that growth not getting respect right now in today’s market is going to be a very long lasting phenomenon. There is a temporary reallocation into safety.
I am bullish on India. I want to park it. I do not want to increase that risk today but as you see the developing numbers, of course, quarterly earnings, guidances are also important. How the summer consumer story plays out is important. How the private sector supports the government in the capex is important. So as these things come out, the high risk, high operating and financially leveraged sections will bounce back.
The correction that has happened over the last few weeks in these kinds of spaces are good buying opportunities. One just has to be patient because the events surrounding the Adani pack has meant a risk-off situation and hence, they are not getting the due reward for the future earnings growth. But I would say it is a temporary phenomenon, it will last for a few days maybe but our clear focus is India is a growth economy. Growth will get that respect and growth will deliver that capital appreciation to you.
You have ITC, Britannia, which is doing well. Then there is Titan. These stocks were not really favoured in the last six to eight months. Is there a case to be made to look at these defensives now?
It is just a case of mean reversion.They were beaten down but today, when they are coming back, it means that India is still in favour with FIIs but because of the events surrounding the Adani pack and the uncertainty, a safer India is being preferred. Since they did not run up so much, there is a room for their valuations to expand, number one.
Number two, the Budget, is putting money in the hands of the middle class and to the extent that it is going to spend in rural areas with the increased agri lending and all the support to tourism and MSMEs. It is also going to put some money in the rural economy. That is a positive for consumption.
So these consumption companies, which are going to get a little bit of an increase in their top line and with commodity prices easing, should benefit with wider margins. So they are seeing a little bit of an uptick.
But this is a temporary parking of the India-oriented money in the safety pack. Over a period of the next few weeks and months and as results come through, we will find that growth, which is not getting the reward today, will get it and there will be a relocation from here. I would say this is a little bit of a mean-reversion trade at this point in time, but it indicates a very strong positive outlook on India from FIIs as they are buying these sectors.
