ETMarkets Fund Manager Talk: Won’t like to be the jockey and invest big despite India’s strong prospects: Nishit Shah, PhillipCapital

After the outperformance in 2022, how do you see India placed within the EM pack in 2023?
The last decade (till December 2021) belonged to the US, majorly led by technology stocks. We believe the next ten years shall belong to emerging economy markets and within that. India will be the torch bearer as it’s poised to be the third largest economy by 2030.

India is relatively better placed with expected nominal GDP growth of 10-15% range for next 8-10 years. India has the ‘D3’ power which none of the other EM has: Democracy, Demography and Digitisation, and this is what will attract a lot of global liquidity.

Having said that, we will not be totally immune to multiple challenges that the world faces today and we might see another year of volatility. However, it will give opportunities for investors like us who like to patiently invest in a staggered manner rather than board a fast moving train.

Which are the funds you handle at
PhillipCapital and how have they performed against the volatility in the market?

We basically run three funds: Phillip Signature India Portfolio (multicap approach), Phillip Emerging India Portfolio (mid & smallcap approach), and PACES (completely customized portfolio)

Our portfolios have been able to tide over the last 15-18 month volatility, and we have not seen any major downswing. It is at times like this wherein you have to patiently wait this period out and bide your time by investing in the right set of stocks, we need to make hay while the sun
is shining but at the same time, we also need to protect the capital during a difficult phase.

Manufacturing is a theme everyone is betting on. Do you think this theme will see greater traction in the current year?
Absolutely! In the evolution journey till now, India had somehow skipped the industrial stage and directly jumped on to the services. But now all the stars seem to have aligned for India’s industrial growth. The factors that are enabling this growth are the PLI schemes, China+1, infrastructure boom, FTA deals, economic trouble in neighboring counties etc.

The capex cycle has finally picked up after a gap of 10-11 years. and it should play out very well over the next 6-7 years minimum.

The best part about manufacturing pickup is that it benefits income generation throughout the entire population chain. Further, massive capacity addition in end-user industries like infrastructure (rail/road), power, oil and gas, steel and automotive provides a reasonable amount of comfort for future growth in the manufacturing sector.

India has started seeing “dedicated” allocations from FIIs within the emerging market basket, rather than being just a part of their EM portfolio. Do you see scope for India to outpace China in the coming years?

Though we are aggressively seeing the China+1 strategy playing out, it’s very clear that it’s not China ‘or’ someone else, it is China ‘&’ India, China & Vietnam, China & etc etc.

For bottom-up stock pickers like us, tracking broad FII allocation does not make much of a difference and we would rather focus on companies wherein even a slight shift from China or any other parameter can change the dynamics of the bottomline of a given company by a huge percentage.

It is difficult to predict with certainty whether India will outpace China in allocation as both countries have their own strengths and challenges. However, India has a large and growing population, which can be a source of labor and consumption, and it has made progress in areas such as technology and services.

Thus, we believe India is at the cusp of a growth cycle. India’s cost competitiveness vis-à-vis China has improved significantly, ultimately, the performance of both countries will depend on a range of factors, including economic policies, global economic conditions, and the effectiveness of their responses to challenges.

How comfortable are valuations currently? Do you see other markets within the EM pack being a better bet?
The benchmark Nifty 50’s 1-year forward valuations (FY24E PE) are hovering at around 20x which is at 15-18% premium above historical valuations. However, Nifty earnings are expected to grow by atleast 15% over the next 2-3 years, supported by economic recovery, company earnings and healthy capital inflows.

At this juncture, we would not like to be the jockey and invest in the next big thing right now, rather our endeavor is to get our heads down and invest in good business for the long term.

Do you see any major downside risks to earnings growth for India Inc? In FY24, which sectors do you think will lead the earnings growth for Nifty 50?
We don’t foresee any major risks to earnings growth except for a few factors like higher interest rates, weak global macroeconomic conditions or some new issue which could limit earnings growth. Manufacturing, BFSI, energy and materials can lead the earnings growth for Nifty 50.

Which are the major sectors you would bet on in the near-to-medium term and why?
Our investment philosophy is to invest in companies that are led by entrepreneurial management, have clean balance sheets, good growth potential over next 3-5 years, and which are not available at obscene valuations.

We have invested into multiple companies across BFSI, capital goods, consumption and IT, we have also invested in 3-4 special situations as we feel it’s one of the best ways to play the Indian markets.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)