- Do global macros favour India?
- Can PSU banks continue outperformance?
- Interim budget expectations
Niraj Shah in conversation Invesco Mutual Fund's Taher Badshah. #NDTVProfitLive
- Can PSU banks continue outperformance?
- Interim budget expectations
Niraj Shah in conversation Invesco Mutual Fund's Taher Badshah. #NDTVProfitLive
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TVTranscript
00:00 Well, we have a big listing that we are eyeing this morning. In 10 seconds, we will hit that
00:07 and of course, then go into an exclusive conversation of Vithay Bharath of Invesco. But just before
00:11 that, that is Medi Assist Healthcare. The stock is expected to see a pretty big gap
00:19 up in early trade and I think the setup as well is not looking too bad for the broader
00:24 markets. This counter could be getting a bump up from the get-go and that's what we are
00:28 anticipating. 20% that's far better than what the street was expecting. 20% gap up on Medi
00:36 Assist as it debuts on the exchanges today. So, that's what we have in terms of listings,
00:41 an exciting opening for this one. Well, we will quickly detour from that and go across
00:47 to Tahir Badshah, President and CIO of Invesco Mutual Fund, now joining in. Morning, Mr.
00:53 Badshah. Thanks a ton for joining us in the early start of this year. Very quick couple
00:59 of things and I want you to put this in perspective for us. As we went into last year, it was
01:04 very gloomy. The setup was concerning, China was a worry, US was headed for a recession,
01:10 geopolitical stress. So, the worries were extensive, the markets climbed over a wall
01:15 of worries. At the start of 2024, we have a bit of a corollary now. So, globally, the
01:20 setup looks really good or bad, debatable, but things seem to be looking up for India.
01:26 But we have already got a very sharp rally behind us. Do you think 2023 has already eaten
01:31 into a large chunk of 2024 gains? I would like to think that, you know, while of course
01:37 we are coming on the back of a very strong performance of 2023 and India of course is
01:40 a market that has significantly outperformed many of the global markets as well. But I
01:46 think my base case view up until for the last recent time has been that probably we are
01:53 likely to see the continuation of this at least in the first half of this calendar year.
01:57 I expect much of the market gains in 2024 to actually come about in the first half of
02:02 this calendar year is when probably it will coincide with much of the expectations as
02:08 far as the strong economic growth is concerned, especially the strength of the investment
02:15 cycle and the way it is unfolding. It will also probably coincide with the market's expectations
02:21 actually building regarding a possibility of inflation cooling off and interest rates
02:26 actually coming off as well to some degree, or at least central banks start to more strongly
02:32 indicate the possibility of interest rate cuts as we get into the first half of 2024.
02:38 And probably it will also coincide of course with election realities as they unfold in
02:45 and around let's say May and June of 2024. So I think from an India standpoint, to my
02:50 mind it looks like much of the returns for 2024 will be front-ended. And then the second
02:54 half is probably when I look to things cooling off. We are also at a stage where by which
02:59 time in the next six months from now we will probably get to valuations which will probably
03:05 hit the upper end of the market spectrum. We are already at about 21.5, 22 times one
03:10 year forward. Typically India has seen it trade up to about 24, 25x on the upper side.
03:18 So I think from now on until the next three, four months is when I expect valuations to
03:24 actually get to that level. And then we actually start cooling off a little bit towards the
03:28 second half of this calendar year.
03:29 Subhash, does that mean then the markets in your opinion for now are already pricing in
03:34 earnings growth and potentially more rate cuts in the US Fed and the disappointment
03:38 on that front could lead to a little bit of a correction of sanity setting in?
03:42 I would say so possibly. There is a good amount of expectation which is built in. I would
03:47 not deny that. But overall earnings momentum probably can be a little stronger. There are
03:55 obviously certain pockets where we need to be a little watchful as well. But I think
04:00 in general, especially those which are associated with the investment cycle, the industrial
04:05 cycle, manufacturing, industrials, that part of the market, that part of the economy should
04:10 continue to do well. We are looking forward to some of the other sectors perhaps becoming
04:15 a little more stronger as we go along, especially the consumption parts of the economy, especially
04:21 on the back of lower inflation and lower interest rates. So I think we are right up there. We
04:27 could probably see some more acceleration. But by and large, I think there is a fair
04:31 bit of enthusiasm and optimism built in as well.
04:34 So in that case, what do you think that could break the back of these markets in calendar
04:40 year 2024? Valuations you already talked about how they are on the higher side and may reach
04:45 heightened levels in the next couple of weeks or months. But what do you think could break
04:49 the bone or what could be that one trigger that could take us lower?
04:55 So at this stage, I would probably not be of the view that we are looking at something
05:02 which is a significant correction. I do expect that markets once they probably reach valuations
05:08 which are at its peak, they start gradually winding down. It's difficult to as of now
05:17 expect or at least what is not visible on the horizon is something which can significantly
05:21 break the back of the markets, so to speak. I think there needs to be a significant loss
05:31 of enthusiasm as far as the earnings momentum for the economy is concerned or for the growth
05:35 of the economy to disappoint for that outcome to probably take place. So I wouldn't go to
05:43 the extent of saying that we are going to get into a down cycle. We are still from an
05:47 overall economic standpoint still in a reasonably decent place. But we have got to get watchful.
05:54 We are now at a stage where 2023 we could probably look at markets playing the momentum
05:59 and getting advantage of the earnings upside. But now I think we need to marry risks along
06:06 with return. We need to probably be a lot more watchful of potential risks as we go
06:12 forward. None that we can probably identify at this stage which is likely to become very
06:17 critical. But then there are a few things that we are watchful about. Let's say for
06:22 example liquidity in the markets, liquidity in the system as such, not as much in the
06:26 markets but liquidity in the system. That as you know is constraining deposit growth
06:31 in a way. It's also probably likely to manifest in the form of slower credit growth as well
06:40 if at all nothing is done about it. So I think that is something that we need to be watchful
06:45 about. We probably need to also worry a little bit about the lower end of the income pyramid.
06:52 We need a little bit of support out of that for overall growth momentum to actually continue.
06:57 We will have to probably wait and see as to how the government positions itself from the
07:04 point of view of the fiscal maths and the ability to support the investment cycle from
07:09 year on as well. We have had two or three very solid years and we could probably be
07:13 in a stage where there the growth can probably be a little lesser compared to what it has
07:18 been in the last two years. So it can take away some of the sheen out of the industrial
07:23 cycle. So these are the things that we need to be watchful about. It's not a time that
07:28 we need to kind of, I mean it's not something which we have to be significantly afraid about
07:33 but these are clearly some things that we would like to watch during the course of 2024.
07:36 So Bhatia, I know as a mutual fund there is only that much of a cash call that you can
07:40 take but if an investor had to ask you, of course investing in a staggered manner is
07:46 ideal and that's the advice we would give individuals. But what would you tell them
07:50 at this stage? Take some profits off the table, maybe take a cash call and stay on the sidelines.
07:55 How do you navigate this market for an investor who is walking into the markets today?
08:01 The best way I think to do it is not as much to take a cash call. I would rather think
08:05 that there is always a possibility of markets going into a sector rotation phenomenon and
08:11 that happens all the time and especially when we get to a stage when markets have done a
08:15 fair bit in the prior 12 or 18 odd months. So I think it would be important to kind of
08:22 diversify. It would be probably good to have a good mix of mutual fund schemes in your
08:28 aggregate portfolio. Probably a combination of growth and value, that's something which
08:34 would be important. We've also seen very strong performance by the mid and small cap segments
08:41 of the market. Would investors like to probably be a little more tuned towards flexi cap kind
08:48 of strategies which give them a little more balance and probably gives them a little bit
08:53 of support in terms of overall valuations as well. So I think these are the things that
08:56 you can probably do. Cash calls are typically to my mind and we never advocate them, not
09:02 from the point of view of anything else, but it's always difficult to time the markets
09:05 and especially if you can probably take a somewhat longer term call, at least three
09:10 or five years is what you have in mind, then I don't really think you need to necessarily
09:16 take cash calls and especially if you can probably manage volatility to the extent of
09:21 5% to 7% in the market which can probably come about at any point in time, I think you
09:24 should be good with that kind of an asset allocation. So that's what I would probably
09:28 recommend to investors at this stage. So no cash calls, stagger your investments, that's
09:32 the word coming in. Subhash, I want to talk to you about banks. What is the sort of view
09:37 you have on banks? Are you overweight, underweight at this stage? It's been more or less a mixed
09:42 pack. The reaction of HTFC Bank was for everyone to see numbers. Maybe you were disappointed,
09:48 the street was disappointed, the stock has corrected. On the contrary, ICICI Bank, Kotak
09:54 have actually managed to please the street and the stocks are trading firm. How do you
09:57 feel about banks as a pack? Do you think they could be the leaders as we go into this year?
10:03 So we have started of the year giving a reasonably strong call about financial services, banking
10:08 and financial services being the place where we probably find value. A couple of reasons,
10:13 one is that the whole, the banking space of course has underperformed in the last two
10:20 or three years and especially the, I mean the bank index itself has underperformed the
10:25 Nifty by a fair bit over the last two or three years. So one from a relative valuation standpoint,
10:30 we feel that this is a reasonably decent opportunity. We also have, we believe that, as of now we
10:36 would like to believe that if the overall economic cycle were to stay reasonably stronger
10:42 then we get, we still get a year or two of decent credit growth. Although I would like
10:47 to qualify this by saying that there are some of these hiccups that we have noticed and
10:52 I mentioned about that with regard to the liquidity in the system and that's kind of
10:56 constraining deposit growth and probably it can have repercussions on credit growth
11:01 in the system as well. But my sense is that probably the central banks would in conjunction
11:07 with the finance ministry, especially post-budget, look at some of those liquidity related constraints
11:12 which are there in the market to make sure that the credit cycle remains where it is.
11:19 So I think we would like to think that the credit cycle is supportive and some of these
11:25 banks can still compound book values anywhere between 13 to 15% and they are reasonably
11:32 priced for that outcome, at least compared to the rest of the market, many other pockets
11:37 of the market. So I think there is a space that we like. Along with banking I would say
11:46 that the entire financial services place is also kind of looking up very, developing very
11:53 well. So break that down for us. You have got your large cap private sector leaders,
11:58 you have got a bunch of broader market PSUs that look very attractive at this stage. You
12:04 also have non-lending entities, so anybody in the capital market play for that instance
12:10 or an NBFC. What is your pick from across these verticals and where does your bias really
12:16 sit? So great that you brought this up and so we run a banking and financial services
12:21 fund for a good number of years and it is almost a 15 year kind of track record. What
12:28 we have been now positioning ourselves for is a much better balance between banking and
12:35 financial services at an aggregate level. I think five years ago we were probably having
12:40 this fund positioned for about 80-85% exposure to lenders, combination of banks as well as
12:46 non-bank NBFCs. Today we have a situation where we are more like 50-50, so the lenders
12:52 constitute about 50% of the portfolio and the balance 50% is in financial services.
12:57 So financial services being a BSC, Aniraki, IFL, CAMS maybe. You are talking about capital
13:04 market intermediaries, you are talking about insurance, you are talking about wealth managers.
13:08 This space has already seen a sharp run up in 2023. It has, it has, yes for sure. But
13:12 there is still some room to grow. What we would like to think is that these are more
13:16 secular growth stories. This is something which we would like to think is relatively
13:20 less cyclical. So in a banking and financial services fund we are now providing a good
13:25 combination of cyclicals versus non-cyclicals. A combination of growth versus value, a combination
13:31 of defensive versus aggressive. So I think that is a better mix compared to what it used
13:35 to be in the past and that is just because of the way opportunities have emerged over
13:39 the last some time because of the financial inclusion and everything else that has happened
13:42 on the financial stack. Financialization of household savings, yes. Exactly. So my sense
13:46 is that and within banks itself, I mean since you brought this up, we would like to think
13:51 that at this stage we prefer private banks to some of the public sector banks. And these
13:54 would be the large cap private banks? A combination of those but by and large yes, predominantly
14:00 large cap banks. Would you be able to comment on HDFC Bank? I am looking for your portfolio,
14:05 you have like portfolios in HDFC. So it is there, so in our portfolios of course we have
14:08 a good positioning and we would like, for us it is a value proposition at this stage.
14:12 So you would have added or the team would have added after the recent call? At least
14:16 in the value strategies which because it is a value proposition for ourselves and that
14:21 is how we categorize this name in our scheme of things. I think it makes sense to have
14:26 it or at least have it adequately represented in some of our value strategies and therefore
14:31 you will see it being up there in a few of those portfolios which follow that strategy.
14:38 Talking about value, couple of sectors where I feel like we have missed the value is railways,
14:43 defence or anything government centric. The rally is there for anyone to see. I mean IRFC
14:49 was checking it this morning, 6 month returns 400%, 1 month returns 100%, I mean these numbers
14:55 are unheard of in other times. Auto wins are big and that is the big story and similar
15:00 in terms of renewable energy this morning, the Prime Minister tweets and these stocks
15:03 rage in trade. Execution is for all of us to see whether or not it is going to come
15:09 through. Are you still very optimistic on some of these government centric sectors or
15:15 plays? If there was a new investor coming in who had no history of what has happened
15:19 in the last one year, would you advise them to buy these stocks despite what we have seen
15:24 in terms of stock movements? So again we have been running a PSU strategy as well, we are
15:29 one of the very few in the market which actually runs a PSU fund and we have got this fund
15:33 running now for the last again more than a decade and up until the last couple of years
15:41 ago I think this fund was obviously, for us it was always a value positioning. We all
15:46 know that PSUs were not only trading at a discount of the market but they were also
15:50 trading at a discount of their own history and to that extent it is not surprising that
15:58 at one level this value has unlocked significantly and it always does when the right elements,
16:04 the right ingredients actually fall into place and that is what has happened. We all know
16:08 that many of these PSUs are actually the largest beneficiaries of a good economic up cycle
16:14 and especially if government spending is supportive and many of these businesses actually dominate
16:19 some of those industries. So it is not surprising and some part of what you said is also a bull
16:25 market phenomenon which unfolds and then you get those very… But is all this already
16:28 in the price? That is where I so understand about this. So now what we are saying is that
16:32 we are no longer looking at this sector or this space from a value standpoint. We now
16:37 have to assess it in relative to their… Growth potential. Impending growth, exactly.
16:42 So you mentioned about order books, order books are obviously comfortable. There will
16:46 be places where even order books and probably potential earnings growth over the next two
16:51 three years is likely discounted. So we have to now be careful. I mean this is not a space
16:56 where we can probably just close our eyes and you know. They are now at a stage where
17:01 they probably are evaluated in the same way as what let us say the private sector companies
17:06 are in several businesses. I mean I did read on Friday was it that IRFC market cap crosses
17:11 2 lakh crores. Yes. So keeping, I mean you know like I said I mean the only thing that
17:18 we can do is that we now have to you know compare these with their private sector counterparts
17:24 and see if this, they are still making sense from a growth standpoint. But obviously these
17:29 are not at least we would not prescribe this fund to our investors from a value perspective
17:35 anymore which it has been for a very long period of time. So you are not recommending
17:39 the PSU fund to your investors? We are at least not telling them this that look buy
17:43 this fund from a value standpoint. This is now as good a growth story and you have to
17:48 evaluate this growth proposition versus any other growth proposition. And the returns
17:51 of this fund must have been phenomenal for you in calendar 2023. Yes, absolutely. It
17:55 is mind boggling you know so to say the least. So obviously beyond expectation but this is
18:01 a culmination of a lot of under performance of the last five years as well you know last
18:06 good number of years over the last decade. So I think that is how the market typically
18:11 tends to behave and like as I said I mean you need all those elements to fall into place
18:15 and then you get a Lollapalooza effect as they say in those places and that is what
18:21 has probably happened here. Wow that is the PSU space. Invesco has a PSU fund that has
18:26 been an outperformer but just like Mr. Batra said of course finding value in this space
18:31 is now becoming a little bit of a challenge. We will take a break, we will come back and
18:34 continue our conversation so stay tuned.
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21:06 Welcome back, we are in an exclusive conversation with Tahir Badshah of Invesco.
21:11 We've talked about banks, we've talked about PSUs.
21:14 Another space that comes to mind is real estate.
21:18 80 odd percent rally last year.
21:20 But what's worth the mention is historically at least what we've seen is
21:25 real estate is usually the last leg of any bull run.
21:28 When investors start buying real estate instead of equity,
21:32 we know there's things to be concerned about.
21:35 How do you feel about the real estate sector?
21:37 Do you think we're at the start of a rally for the space?
21:40 And also if not realty alone, real estate ancillary,
21:43 how is that play looking to you at this stage?
21:46 >> So, I mean, you're right in one way that we've seen at least maybe on one
21:51 occasion if not more that real estate typically tends to kind of define
21:55 the peak of the market as well.
21:57 But I think we're seeing some differences in the past real estate cycle versus this
22:02 and we'll probably keep monitoring as to how this unfolds.
22:06 Especially from the point of view of the nature of the demand and
22:09 the drivers of the demand.
22:11 I think we're dealing with an industry which is a lot more formal regulated
22:17 compared to what it used to be, let's say, in the past cycle.
22:21 And therefore, the probability of it benefiting some of the more organized
22:26 players should perhaps continue compared to the past.
22:30 Second is that we're seeing a frenzy of demand,
22:35 but we're also seeing a fair bit of that being more user driven demand
22:41 rather than it being investment led demand this time around.
22:43 So that probably makes it a little more different.
22:46 Third is affordability levels are much better than what they used to be
22:50 at the same time of the cycle in the last one.
22:54 And I'm going back all the way to 2008, '09, '10,
22:57 that is the time when we actually saw the cycle peak.
22:59 And the drivers were pretty different at that point in time.
23:03 I would also, at the same time, I would like to think that
23:07 given the performance of many of these stocks in this place,
23:10 we're definitely not early cycle.
23:12 We are somewhere mid cycle, if not the top of the cycle.
23:17 And I would like to think that, yes, I mean, there still has a fair bit of room.
23:22 The space still has a fair bit of room.
23:24 Of course, with the usual caveats that we have to avoid some of the pitfalls
23:28 and try and be with companies which make sense.
23:32 So that goes without saying.
23:34 But I would like to think that we are probably more mid cycle
23:37 than top of the cycle at this stage.
23:39 You've talked about a few sectors you like,
23:41 and we also talked about how it's all about sector rotation.
23:44 Last year belonged to defense, railways, PSU.
23:48 What are your top sector bets this year, A?
23:51 And I'm going to try and slip another quick question along with this one,
23:53 is how do you feel about the chemical sector?
23:55 Do you think they could reclaim their lost glory after a long hiatus
23:58 in the next few quarters?
24:00 So chemicals and the other sector bets for this year.
24:02 So that's a nice one.
24:04 We are in that space where we ourselves are kind of debating in our minds
24:08 as to how we should position ourselves for much of 2024
24:12 and maybe a little beyond 2024 as well.
24:15 Like I said, we have to be a little clear about how strong
24:21 will be the investment cycle in India, especially after the last two years
24:25 of very strong outcomes.
24:27 Part of it will probably be dictated by the budgetary positioning
24:32 that the government takes, and we'll take it from there.
24:34 But be that as it may, I think we believe that some parts of consumption,
24:40 like as I said earlier in my conversation,
24:42 is something that we are looking at quite keenly.
24:45 We think that those are parts which have underperformed the market.
24:48 And there's a good possibility that just by the virtue of rotation,
24:53 some of these may come back.
24:56 Maybe they might be supported by possible cooling off of inflation
25:00 and the expected decline in interest rates as well in 2024.
25:04 So I would like to think that we might have a relatively better balanced
25:08 economic outcome, not only driven by the investment cycle
25:11 as it has been in the last 18 to 24 odd months.
25:15 But there will be a combination of investment as well as consumption
25:17 coming back, and that should spur some of those.
25:21 Rural versus urban?
25:23 It's not as much.
25:25 Incrementally now in India, it's more high income versus low income.
25:30 It's more about income levels rather than geography.
25:34 So we are incrementally not cutting the market based on where you live
25:38 or rural versus urban.
25:39 So lower, mid-income or higher income?
25:42 So mid to higher income, and of course the ultra-rich
25:45 have actually done exceedingly well in the last some time.
25:48 We would like to think that the low to mid-income,
25:51 which has been a struggle over the last two, three years,
25:53 potentially can come back.
25:55 We should be able to identify some players that belong to that.
25:58 I would also like to think that somewhere in the course of 2024,
26:01 we might be up with the proposition that could we have
26:09 global versus domestic.
26:12 And pharma could be one theme there.
26:14 So some of the global sectors or globally exposed sectors,
26:17 pharma is one that you called out.
26:19 You could probably also see tech becoming a little more certain
26:23 from the point of view of demand.
26:25 As of now, the sector has done well.
26:26 Stocks have done well, but they've not done well as much
26:28 on the merit of the business.
26:30 But if the business starts strengthening the second half of the year
26:33 and into 2025, then that is a story which can still have legs.
26:36 Pharmaceuticals is what we talked about.
26:38 I would like to think that if we extend global players
26:41 and even commodities, and that is where your question on
26:43 chemicals as a commodity is.
26:46 I think that's something which, again, from a value standpoint,
26:50 we would like to look at.
26:52 '21, they were valued, they turned into growth.
26:55 Then '22 again, much of 2023, actually, they turned into a negative cycle.
27:00 So I think we are now starting to look at them more from a value standpoint
27:04 because this is where pockets of value actually are.
27:06 So I think the whole commodity space, including chemical commodities,
27:09 from a value standpoint, particularly for our value strategy,
27:12 does make sense.
27:14 So we are being picky out there.
27:15 We are trying to see what we can do.
27:17 But it's hard finding value at this stage across market caps.
27:19 It's not easy, yes, I would say so.
27:21 But I've also noticed that in the last decade or so,
27:24 by rotation, because of rotation and because of excess concentration
27:27 or extreme confidence of the market and a few pockets of the market--
27:31 There's always value somewhere else outside those sectors.
27:33 --outside of the market which gets ignored and converts into value.
27:36 So I think we just need to be kind of watchful,
27:39 and we should be on the ball and try and see as to which is the place
27:44 where investors are completely-- Ignoring for now.
27:46 Ignoring the outcomes for now,
27:48 and that typically becomes a good starting point.
27:50 So cautiously optimistic is probably the best way to sum up
27:53 how you feel about these markets.
27:55 Overall, yes, I think I'm reasonably fine.
27:57 But I would say, I mean, '23, I did not worry as much about--
28:01 Valuations. --negatives.
28:03 Because all of that was already getting talked about.
28:05 Much of it was-- the picture was very clear,
28:06 but then when the picture becomes very clear is when you ought to be
28:08 actually a little more watchful because you don't know what will hit you.
28:11 So I think '24, I would say, good from a return perspective,
28:14 but please don't lose sight of the risk.
28:16 Right. Well, thank you, Mr. Barsha.
28:18 Great talking to you today on the show.
28:20 With that, we're completely out of time.
28:22 Thanks for watching Talking Point.
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