ETMarkets Smart Talk: India can’t be ignored for long and soon FOMO will set in with FIIs: Harendra Kumar

In an interview with ETMarkets, Kumar with over 20 years of experience said: “For us, we need to have a strong visibility in earnings over the near future. At a stock-picking framework level – you can also put it as Opportunity, Scale, Management, and Valuation. It must meet these criteria,” Edited excerpts:
What is your take on markets amid global and domestic headwinds? We are already down by about 10% from highs but are fast catching up.
Indian markets have spent a gut-wrenching 18 months at the same levels. This is a good outcome given the uncertainties. The positive take from this is that we have emerged from the global quagmire without any ‘price damage’ and with only a ’ time correction’.

The post-covid world is normalising and the distortions also are getting normalised. We see reversals of most headwinds viz inflation, outflows, and interest rates in the next 18 months – which, by themselves, will be key catalysts.

Meanwhile, India has emerged as the bright spot – but it is not in the price. It is advised to stay long than on the sidelines.

What do you make of the RBI policy statement? Have the interest rates peaked and now we could see a lowering of interest rates?
The markets have read it as the ‘Beginning of the End’ of the interest rate cycle. If that is true, the entire paradigm and construct of the market will change.

However, the RBI Governor has asserted that the current pause should not be viewed as a pivot. In our opinion, the bar for future rate hikes has been raised.

A prolonged pause hereafter is a good assumption to work with than a resumption in the rate-cut cycle.

How should investors position their portfolio in FY24?
The character of India’s Budget is getting morphed each year into a Capex-heavy one. We are sanguine about Capital Goods + Defence, Infrastructure, and the underlying credit (Banks) to remain strong.

Tech will continue to lower as the slower growth gets priced into the multiples. The possibility of market breadth becoming broader in H2 is a strong possibility. Adding to that mid-cap and small-caps at current levels could reap rich rewards.

Do you think a rise in crude oil prices could materially impact the performance of India Inc. and then in turn markets? Some analysts are pegging the crude oil to touch over $100/bbl.
We have managed the fiscal shocks of a strong crude for some time and the market has not budged. As a growth economy, an increase in ’nominal growth’ is more welcome.

Would a rise in crude prices lift all boats in the commodity complex is the moot question. If that were to be true – we should see participation from newer sectors joining the rally.

India is not cheap and so are the companies. How should investors pick stock in FY24. Should investors focus on growth or value stocks?
India has substantial value in many sectors. Be it Infrastructure, Banks, Power, Automobiles, etc. The cycle is also working in their favour. Running a ‘multiple-compression’ risk but adding to growth stocks is a no-go area for us.

How do you filter stocks for your portfolio?
Earnings! Earnings! Earnings! For us, we need to have strong visibility in earnings over the near future. At a stock-picking framework level – you can also put it as Opportunity, Scale, Management, and Valuation. It must meet these criteria.

Turnaround stocks or cyclical plays emerging from their trough is a key criteria. As the shareholder return profile improves – the multiple rating variable also kicks in.

Do you see value creation in the manufacturing space given the govt emphasis remains strong?
Indeed. The ‘value capture’ is now moving closer to home. `Atmanirbharta’ is being seen in the Defence stocks and in the Railway stocks.

Who would have thought that these stocks would generate the value that you see today in the market? These trends will become stronger, and investors will have to change the lenses through which they view these opportunities.

FIIs seem to be turning back to India. Do you see this as just a one-off scenario or does the trend seem to be reversing?
The outflows over the last two fiscals have been unprecedented. With the growth profile and outlook over the next decade – India can’t be ignored. Soon, there will be a FOMO feeling that will set in with the FIIs.

Today, we have the ability and appetite to absorb flows at much higher levels.

Imagine the price impact if the domestic and FIIs flow in tandem over the next two years. Mind you it is a strong ability that should not be ignored.

What are your expectations for the March quarter earnings? Which sector(s) is likely to lead the profits and which ones will be in the laggard category?
We expect the Q4FY23E Nifty50 sales to increase ~13% and ~5% QoQ. Energy, Consumer Discretionary, and Banks will lead, while basic materials, led by metals, will be laggards.

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