Many market participants are now very confused until the end which on one end looks expensive, there is euphoria on the part, there is a burst of liquidity, but on the other hand you have a lot of FOMO and you miss out. in the general meeting if you do not attach. What do you do about it?
Jigar Mistry: So, as mentioned, I think we are all in the same boat. What happened was two things. Until October 2023, we are all of the opinion that the fundamentals and fundamental valuations are almost the same. But after that, I think there were two events that changed the trajectory of the Indian market. The Fed appears to be moving faster than expected. For almost a year, nothing happened and clearly the US market reacted. But if you look at the Indian market, because of the wealth that the stores have created in the last three or four years, the prices have remained more expensive than we would have imagined. Add to that the fact that you have the most orderly headwind of a rate hike cycle since the 1980s that the Federal Reserve has seen. So, 1980 obviously caused a GDP contraction of almost 20% and all subsequent rate hike cycles, late 90s, 2007, and obviously 15 to 19 one all caused some or the other crisis. This time, they raised rates at the fastest pace since 1990 and nothing happened. And I just wrote
yesterday’s article in ET explains what seems to be the reason.
But with the current background, I think what is happening is how the retail that generates some phenomenal wealth is now taking over the whole situation in India and therefore, if you look at it only from a flow point of view, it is quite possible that we will remain at a higher level this and we all now have to adapt to survive in this climate.
And generally, where do you see more value? Obviously, the answer will be in capital letters, but even in capital letters which sector do you see value in?
Jigar Mistry: I am a couple of sectors. BFSI clearly explains the heart because if I look at the earnings trajectory, one, if you look at the overall BSE 500 which is probably the broader market and covers almost 93% of all the listed market caps in India, if you look at the board. , I think the June quarter results show that earnings growth has slowed down.
So, at the overall market level, you’re seeing growth slowing down. Second, in the sectoral space if you look at the dislocation, then where the earnings have come through where the performance of the index has come. So, clearly you see sectors such as real estate, utilities and industrials where sectoral growth is faster than earnings growth, so the index has moved ahead of earnings estimates. Whereas there are sectors like pharmaceuticals and BFSI where earnings have been quite resilient but given the ownership issue, stock performance has not been good and I think our additional focus is at this point, even FMCG and durable.
But in BFSI where you find the maximum amount of comfort because BFSI has become very wide right from private, public banks to insurance, financial ancillaries, AMCs worldwide. What does it look like to be ready for the best risk-reward amount?
Jigar Mistry: If you look at the private banks over the last year, earnings have grown at like 28%, but the prices show that they have, if you look at the good bank for example which I agree is a little bit wrong because the two banks account for almost 40% of the weight of the index but which has not really moved all that much and I attribute it a lot to the fact that it is more difficult to get deposits and all the basic reasons, but all the basic reasons are reflected in the earnings.
Despite this, the index does not move enough that I think the ownership problem factor. So, wherever the global interest rate rises, FIIs have become net sellers if you leave it two months ago and in that scenario they can only sell what they have. If you look at the top 10 overweight positions of FIIs in India, 6 of them are banks. So I think they are selling what they can sell which is the banks and I think there is a fundamental problem. If the earnings trajectory more or less continues, then I think FIIs are coming back as interest rates are starting to be cut,
I think private banks will benefit the most followed by PSBs. PSB has been re-rated. We have caught a lot of people in the last three years or more, but in addition I would say that the business model dictates that the income of the fee, the cost to the cost to the cost to the income, does not allow the ROE tree to imitate the small private sector banks some amount of gap is par for sure and they now look spacious as well as poised. The least favored sector is the MFI space. So we used to have some names in the MFI space that we don’t have now.
