- Foreign holdings to rise as India takes top spot in EMs
- Nomura's Q3 earnings expectations
Samina Nalwala in conversation with Saion Mukherjee on 'Talking Point'. #NDTVProfitLive
- Nomura's Q3 earnings expectations
Samina Nalwala in conversation with Saion Mukherjee on 'Talking Point'. #NDTVProfitLive
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TVTranscript
00:00 Keeping that aside, do you think things are now actually changed?
00:04 I mean, India is at a cusp of big change where it can afford a command FI flows in absolute
00:10 terms or are you still seeing some amount of rebalancing that's taking place where global
00:14 investors have been adjusting their portfolio by trimming down their heavily weighted positions
00:19 in India as we go into this year?
00:21 So, yeah, I mean, see, the thing is, if you look at in the emerging market context, right,
00:28 so China has been a big underperformer and, you know, there have been other issues in
00:34 China as you're aware of.
00:36 So in that context, you know, in our interactions, I do see, you know, foreigners are looking
00:42 at India much more constructively.
00:45 And I think there is more appetite to invest in India.
00:50 And you know, I think that can potentially sort of continue if what we see as the outlook,
00:56 you know, going forward.
00:58 So from a flow perspective, I think India would continue to sort of, you know, get its
01:04 share and there is an impact of rebalancing as sort of India's weight in various indices,
01:10 you know, keep going higher.
01:12 On your question on absolute flows, yes, I think there is a case, but it's a slow process,
01:17 right?
01:18 So if you look at, you know, the initiative, the policy initiatives that are currently
01:23 being undertaken, for instance, you know, we are, you know, talking about manufacturing.
01:28 The fact is manufacturing as a percentage of GDP today is at almost at an all time low
01:34 at around 13, 14%.
01:36 But the intent is to take it up to a level like, say, 20% or 18% over a period of time.
01:43 So my sense is that, you know, we will eventually get there.
01:47 It's an initial start.
01:49 And I think there are reasons to believe there is a policy support domestically and also
01:54 globally.
01:55 I think companies are looking at alternatives to China, you know, as a way to diversify
02:01 their presence.
02:02 And of course, India does present, you know, a strong home market.
02:07 So all those factors are, I think, positive.
02:09 And I therefore think that one can argue that, you know, India story would sort of evolve
02:16 strongly over the next, you know, four or five years driven primarily by, you know,
02:22 manufacturing.
02:23 Will that story be signed?
02:25 We've seen a few earnings and a whole lot of business updates over the last couple of
02:28 weeks.
02:29 Now, rural consumption is still not showing a meaningful recovery.
02:33 When do you anticipate this evening out?
02:36 And also, do you believe that the story in India right now is more discretionary versus
02:41 staples or more appropriately asked luxury over staples?
02:45 Yeah, that's true.
02:47 So I think, you know, what we all call about a K-shaped recovery, the impact of COVID,
02:52 right?
02:53 So, you know, the growth in India has been, I think, mostly about government spending
02:58 and affluent spending, actually, you know.
03:00 So the mass consumption has really struggled.
03:03 So if you look at, let's say, the rural real wage, it has been real wage growth, right?
03:10 It has been negative for most of the years, most of the months since COVID.
03:14 Now, going forward, we think at the margin, things can improve.
03:18 You know, with inflation coming down and rural income in general recovering, I think we may
03:25 see mass consumption, the kind of decline or slowdown that we have seen sort of stabilizing
03:32 and things start to sort of improve.
03:35 But yes, at this point in time, it's been more about luxury spending and affluent spending,
03:41 which has been sort of very prominent.
03:43 And it's also sort of getting reflected, you know, in the stock prices.
03:48 But we hope that it would sort of get more broad based eventually over a period of time.
03:54 Right.
03:55 Sain, let's talk about some of the other sectors that have been the biggest talking point in
04:01 the last, in fact, in this in the last year that's gone by, right?
04:05 And I want to keep the focus on that because these are reliant on government policies,
04:09 government initiatives, big order wins, which have driven these stocks to record highs and
04:14 multiple returns.
04:15 Is that the space you like?
04:17 So I'm referring to sectors maybe like defense, railways, still value there?
04:21 Or are you concerned that while orders are taking place in the markets, pricing and a
04:25 lot of that execution is somewhere down the line become a challenge?
04:29 Yeah, absolutely.
04:31 So I think, as I said, right, I think the narrative is strong.
04:35 We have seen, you know, very strong initiative and capex, let's say, in railways.
04:40 In defense, there is a thrust on indigenization, more capex, and even looking at the export
04:46 markets.
04:47 I think all that is true.
04:48 But then the question is, you know, as you mentioned about execution, I think especially,
04:53 you know, in areas, let's say, when we are, we don't have the technology or we are dependent
04:57 on technology from abroad, we may see, you know, some delay in execution.
05:03 That's going to be an issue, I think, given where the expectations are.
05:07 And that is precisely the reason I think when we look at some of these names and the stock
05:13 valuations, we find it very, you know, expensive.
05:16 And that's the key reason, though we kind of appreciate the narrative that's going to
05:20 play out.
05:21 But I guess the valuations are not very supportive.
05:24 And that's the primary reason, you know, we are underweight in that sector.
05:29 Right.
05:30 Also, another sector that saw lots of euphoria in the last two days has been the IT sector.
05:35 Now, I would imagine that while earnings came in and markets gave it a thumbs up, we went
05:40 in a very low expectation.
05:42 So, you've honestly performed in line with low expectations.
05:45 Also, what we've seen is attrition is low, margins have also improved, which is on back
05:50 of operational efficiency, which usually happens in a slowing down economy.
05:54 Historically, in the 15 years that IT has done well, margins have actually not been
05:58 – they've been lower rather.
06:00 So, fair bit of corollary there.
06:02 Do you feel like the markets are missing the woods for the trees when they look at IT sector?
06:07 Yeah, no.
06:08 So, basically, I think, you know, there has been a series of disappointment in IT services.
06:15 And I think the expectations going into the results were quite low.
06:19 So, I think that is the backdrop.
06:22 You know, actually, no disappointment itself is a good news for the stocks to do well,
06:27 I guess.
06:28 So, that also sort of, you know, sums up the sentiment that's prevailing in the market.
06:34 But, you know, we are concerned on IT services as a sector.
06:37 I think, you know, the discretionary is yet to pick up and there is, you know, slowdown
06:44 in the top line, though there is margin support, as you mentioned.
06:47 And you know, the valuations have again sort of, you know, moved higher.
06:52 And today we are dealing with a much slower, slow growth environment than in the past.
06:57 And the valuations have moved higher.
06:58 So, to that extent, you know, sort of we are and we continue to remain relatively cautious
07:04 on that space.
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