“The demand here is almost non discretionary in nature, with a long runway available for growth and undemanding valuations. From that consideration, we do hold a good long-term view on them,” Vinit Sambre, head of equities, told ETMarkets in an interview.
Edited excerpts:
Markets have hit record highs. Would you be cautious at the current levels or would continue to deploy funds into stocks?
Since the last 2.5 years from the start of the pandemic, the world has seen decadal shifts in macros. The multi-decadal low interest environment has seen a sharp reversal, global debt has risen to unprecedented levels, currencies have seen disorderly movements, supply chain continues to hurt, and to top it all, the geopolitical issues makes it difficult to predict the future. With this set up, Indian markets continue to show strength due to well managed government policies which promise diversified economic growth over next few years.
Along with ample liquidity and less avenues available for investment, Indian markets have outperformed many global markets.
While maintaining our positive long term outlook on Indian equities, we are cautious about the current valuations, and are looking at select sectors which provides us a good long-term opportunity with some margin of safety in valuations.
How has your fund grown in 2022? What is the kind of cash level you are sitting on?
We do not take cash calls, and on an average, we hold around 4-5% cash in our mid- and smallcap strategies to meet any liquidity requirements.
What has been your portfolio strategy amid the volatility seen this year?
The portfolio strategy has not changed and is aligned towards creating long term wealth for our investors.
We look at investment as a tool to participate in good quality businesses run by capable management and delivering superior return on capital over a long period of time.
This approach has worked well in the past and hence makes us confident about its effectiveness in future as well.
What’s your outlook for 2023 for Indian equities?
India seems to be in a sweet spot for the next few years. However, given the fact that markets are factoring most of the near-term good news into the valuations, investors need to set their expectation low from 2023 perspective and look at investments with a 5-6 year horizon.
India has managed the macros well during the pandemic in comparison to developed nations. Our corporate balance sheets are strong with RoEs for corporate India around 14-15%.
The leverage (debt:equity) of top NSE-500 companies excluding financials have fallen to 37% in FY22. The banking sector has seen a clean-up in their asset quality with system GNPA ratio falling from 11.5% in FY18 to 5.9% in FY22.
India is likely to see macro-economic cyclical recovery over the next 4-5 years on the back of investments which are taking place today in key areas of railway, defence, roads, along with upcoming large opportunities like hydrogen, electric charging infrastructure, data centres, renewable etc. Further, the government’s thrust on domestic manufacturing would see India’s GDP contribution from manufacturing going up which should also aid in job creation. We see these factors supporting a long term case for remaining invested in equities for wealth creation.
Which sectors are likely to outperform and underperform in 2023 and why?
We believe banking, pharmaceuticals and automobiles should see outperformance next year. The credit cycle is on an upswing for the banking sector with low credit cost and reasonable valuations. Pharmaceutical companies should do well on a low base in the current year and valuations are also reasonable. Auto sector should see the benefit of cyclical uptick as the sector has languished in the last 2-3 years.
Which sectors are you currently bullish on, and would want to add more stocks in the portfolio?
We have been positive on banking and automobile since the beginning of this year and have been selectively looking to add into pharmaceuticals and IT stocks due to reasonable valuations.
Further, we are looking at companies which could benefit from improvement in diverse themes within manufacturing like defence, PLI, railways etc. We have exited from stocks with rich valuations which looked unsustainable.
You have a fairly decent exposure to the healthcare sector. But stocks in this sector have relatively underperformed in 2022.
Pharmaceutical companies are facing challenges like high raw material price, poor pricing environment in US and currency-led slow growth across few geographies leading to their underperformance.
These transitionary issues are causing investors to neglect the strong capabilities of Indian pharmaceutical companies to provide the most cost-effective products globally.
The demand here is almost non discretionary in nature, with a long runway available for growth and undemanding valuations. From that consideration we do hold a good long-term view on them.
SIP inflows have hit record high – what does it tell you about the retail investor’s behaviour?
Yes, retail investors are displaying mature behaviour over the last few years. The fact that SIPs have been consistently growing shows that investors are not getting affected by the short term volatility and their belief in the power of compounding of equities is also growing.
Do you have any exposure to new-age technology companies? If not then why?
We are comfortable owning businesses where we could see a reasonable path to profitability and make sense from a capital efficiency standpoint. This has led us to avoid investment in some of the new age companies.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
