In an interview with ETMarkets, Badshah said: “We have recently increased our exposure to residential real estate noting demand resilience, steady improvement in demand-supply,” Edited excerpts:
We are seeing some turnaround in Indian markets – is it the Diwali dhamaka or Santa rally?
Indian markets were off to a weak start in the early part of 2023, trailing global markets due to growth concerns, particularly in the consumption economy, from rising interest rates and higher relative valuations.
However, markets have been steadily outperforming now for more than 6 months as the overall investment cycle has maintained strength, inflation has cooled off and the impact of interest rates on consumption has been less worrisome.
We are very constructive on India’s overall economic cycle for the next few years led by the ongoing structural investment agenda and supported by a more broad-based recovery in consumption demand starting in 2024.
This is also borne out by the strong performance in recent months of the broader markets constituents that are more leveraged to the domestic economy. To us, therefore, this rally appears much more secular than just festive-led cheer.
What are your expectations from Samvat 2080?
We expect the rate cycle to start easing in 2024 as inflation achieves post-Covid normality. We believe India’s investment and real estate cycle are in their early stages and can witness multi-year growth led by the continuity of public and private sector investments and favourable govt policy.
We anticipate consumption to be more broad-based across the income pyramid than what we have witnessed post-Covid.Top risks that investors should watch out for in the next 12 months?
Of the known unknowns, a further slowing of the global economy particularly the US, more complexities in geopolitics and a delayed rural recovery locally, are prime risks.
India must contend with a heavy political calendar as well that can induce a higher order of market volatility in the next few months.
How should one play the capex theme? Do you have some traction in this space ahead of national elections?
We are already in the midst of a good investment cycle unfolding in India supported by a strong post-Covid demand resurgence that has taken capacity utilization levels to new highs.
With bank and corporate balance sheets now in relatively better shape, we think this cycle can maintain strength.
We play this opportunity through a diversified set of sectors spanning manufacturing, defence, power, railways, and real estate.
While public sector ordering activity may taper in the run-up to the general elections, we see that as only a passing phase in the overall picture.
With interest rate at around 5% — how is FII activity likely in Samvat 2080?
We do not see 5% yields in the US as a showstopper for FII investment since corporate earnings in India quite comfortably offer prospects of mid-teen earnings growth over the next couple of years at reasonable valuations.
Besides, we expect India’s currency to hold up relatively better than in the past with a narrowing current account and better capital flows. This may imply stronger dollar returns to overseas investors.
What does the management commentary of India Inc. suggest for the next few quarters? Any earnings of companies that stood out?
Corporate India experienced strong profit growth last quarter helped by softer input costs and stable revenue growth.
The overall mood appears upbeat and rising capacity utilizations and a constructive policy regime are driving confidence to undertake next phase of capacity creation.
Real estate stocks have been in focus lately – are you tracking this trend?
We have recently increased our exposure to residential real estate noting demand resilience, steady improvement in demand-supply conditions translating into healthy price momentum, continuing strength in affordability metrics and a higher share of end-user demand over investment-led demand.
Any sectors that investors should avoid or go underweight after a recent rally?
We reckon demand recovery in IT services may get pushed out into the latter part of 2024 and global commodity price trends to be modest given China’s changing growth contours.
On the domestic front, barring certain pockets of the industrial space, we do not see meaningful valuation-led challenges in any particular sector.
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