- Retail participation in equities to rise?
- 2024: A year of banks?
Niraj Shah in conversation with Bajaj Finserv AMC's Nimesh Chandan on 'Talking Point'
- 2024: A year of banks?
Niraj Shah in conversation with Bajaj Finserv AMC's Nimesh Chandan on 'Talking Point'
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TVTranscript
00:00 [MUSIC PLAYING]
00:03 All right.
00:12 Thanks for tuning in to this broadcast of Talking Point.
00:16 And I think we have a new kid on the block getting
00:19 listed today as well.
00:21 Here's the ringing of the gong.
00:24 GPT Health Care, remember, got subscribed about eight times
00:27 or thereabouts.
00:28 And let's get the stock price up on the screen, if we can,
00:33 please, and just see what it is doing.
00:35 15% higher on open.
00:37 So much unlike Juniper Hotels yesterday,
00:39 which had a subdued listing, GPT starts off
00:42 on a good footing for now, about 18% higher,
00:45 and on a subdued day for the markets as well.
00:47 So not a bad start.
00:48 Let's see if it sustains this.
00:50 Remember, like I said, you can't compare a hotel and a health
00:55 care stock.
00:56 And the subscription numbers anyways were different,
00:58 so suffice to say, worked out this way.
01:01 OK.
01:02 Now, thanks for tuning in to Talking Point.
01:04 I'm Niraj Shah.
01:05 And our case for a chat today really
01:09 focuses or centers in a big way around the retail participation
01:14 in equities and whether that is set to rise.
01:16 Very likely so.
01:17 But could the SEBI caution around SMIDS
01:22 result in some bit of extended heat
01:24 for some of the small and mid-cap stocks?
01:26 That is a key thing to monitor as well.
01:29 The other question that we ask is, for the markets to do well,
01:32 it is natural that the heaviest weightage index, which is banks,
01:35 have to do well.
01:36 Could 2024 finally be the year of banks?
01:40 Because 2023 was anything but that.
01:44 To talk about all of this and more,
01:46 and talk about some of the key news flow today,
01:49 we have with us Nimish Chandan.
01:50 He's Chief Investment Officer at Bajaj Fintsev.
01:54 Nimish, good having you.
01:55 Thanks for taking the time out.
01:56 I hope all is well.
01:59 All good, Niraj.
01:59 Always a pleasure to be in conversation with you.
02:02 Thank you.
02:03 Likewise, Nimish.
02:04 Just the cautionary tone sounded off by SEBI.
02:09 It's not the first time that experts have spoken about it.
02:12 Just that when SEBI comes in, when SEBI uses the term froth,
02:16 it makes people stand up and take notice.
02:18 I'm wondering, when you're thinking about this space,
02:21 are you concerned, per se, with the overall valuations?
02:25 Or it may not matter as much, because yes,
02:27 the overall valuations may stay elevated,
02:30 but there will always be pockets wherein smart investors can
02:34 find good growth stories.
02:38 I think, Niraj, for the couple of months
02:40 now, or maybe a little more, fund managers, CIOs,
02:46 have been coming on television and talking
02:50 about that when a certain category gets
02:53 into very high expectations and overvaluations,
02:57 you need to be a little cautious when
02:59 you are picking companies or teams
03:01 from that side of the market.
03:04 And small caps also have been in discussion in that same lens,
03:08 that they have rallied significantly in the last year.
03:14 And now, when you're looking at businesses in this space
03:18 and investing in this space, you have
03:21 to be a little extra cautious considering
03:24 the overall valuations.
03:26 Not that you would not invest in a small cap.
03:30 So for example, at Bajaj Spencer AMC,
03:32 when a good business comes as an idea for us,
03:35 we don't immediately cut it off because it's a small cap.
03:39 But obviously, we look at a little more cautiously
03:43 as to what valuations the company had
03:45 and what is the trading at today,
03:47 what kind of expectations have already
03:49 been built in by the crowd.
03:50 And ultimately, investment is about understanding
03:54 the difference between what you think
03:56 is the intrinsic value of a company
03:58 and what market prices have already
04:01 built in in terms of expectations.
04:05 So a lot of experts have been talking about it.
04:07 And I think Femi also wants to just hint to people
04:11 that just be cautious here.
04:12 It's not that there are no good businesses in small caps
04:17 or not companies worth investing.
04:19 But just that you have to be cautious about liquidity,
04:22 volatility in this segment.
04:23 I think that's the main message.
04:25 Yeah, most certainly.
04:29 I'm still trying to get to this idea, Nimesh.
04:36 A clutch of sectors, a clutch of newer avenues
04:39 that have opened up in India--
04:40 I mean, the PLI beneficiaries, sectors like chemicals,
04:43 et cetera, just don't have a large cap presence, maybe one
04:47 or two.
04:48 But some of the high growth companies,
04:49 potentially longer gestation companies of growth,
04:52 are currently mid-caps or small caps.
04:54 Because I mean, by definition, small caps and mid-caps,
04:56 the average market cap has also gone up, right?
04:59 Or by performance.
05:01 So my limited point is, yes, it's
05:03 good to be cautionary in this space
05:04 because the stocks have gone through the roof
05:06 in multiple areas.
05:08 But it still remains possibly the best hunting ground
05:13 for longer-term growth stories, doesn't it?
05:17 Oh, you are absolutely right, Neeraj, on that.
05:20 As I said, there are very good businesses here
05:23 to really pick from.
05:25 And overall, we are in a very beautiful situation
05:29 in the country where our macros are doing very well,
05:32 much better than I have seen in my career
05:34 compared to some of our peer countries,
05:36 where we were generally compared to--
05:37 we were doing much better in macros.
05:40 Our corporate earnings growth is extremely good.
05:42 It's doing very well.
05:43 It's well-diversified.
05:45 So the earnings pool that contribute
05:47 to the growth in the overall NIFTY or in other indices,
05:52 that pool is very, very diversified.
05:53 So India is a beautiful market for stock pickers
05:58 to really build a good portfolio.
06:00 And we are bullish over a longer term about all the categories,
06:04 large, mid, or small.
06:06 There is wealth to be created.
06:08 But often what happens is when markets get excited,
06:13 they discount multiple years of growth in a particular business
06:19 or in a particular category or, say, a theme.
06:22 And they give the value for it today.
06:26 So what happens is even if those growth prospects,
06:30 the potential, translates into reality,
06:34 if we have already factored that in in our current estimates
06:38 and in the current price, then the price
06:40 doesn't see that change.
06:42 And life is lived in cycles, but people
06:46 like to project it in an Excel sheet in a straight line.
06:49 Whenever there is even a small downturn in those areas
06:52 where people have high expectations,
06:54 then the stocks collapse very quickly.
06:57 See, the intrinsic value or fundamental value,
07:00 however vague concept it is, it acts as a magnet to the price.
07:05 Many times people move ahead of pricing some opportunity
07:10 very high, very soon.
07:12 Then it has to correct.
07:14 Sometimes people get depressed.
07:15 Like some of the areas you mentioned in PLI,
07:17 for example, look at the chemical sector.
07:18 Last three years, it's been a big underperformer.
07:21 So now when the business is actually--
07:23 they come up from this slowdown or downturn
07:26 that they were on, and you'll see the re-rating also coming in
07:30 when the numbers come back.
07:32 On a longer term basis, ultimately stock price
07:35 follow the earnings growth or the profit growth
07:40 in a company and a sector.
07:43 OK.
07:44 Nimesh, 2023.
07:48 OK, firstly, are you constructive on markets
07:50 currently, or would you believe that tactically,
07:52 if you were to play tactically, if your mandate allowed
07:54 you to play tactically, would you
07:56 sit on a larger pool of cash?
08:00 I'll do better than that for you, Neeraj.
08:01 So we actually split our--
08:04 so we launched a balance advantage fund
08:06 which uses fundamental and behavioral indicators.
08:08 I just split the view from there.
08:10 On a fundamental basis--
08:12 and this is the large share view.
08:13 On a fundamental basis, we are at the intrinsic value,
08:16 very close to the intrinsic value of the NIFT.
08:19 That we calculate a number of parameters,
08:22 and we come to this.
08:23 And we've done some back testing,
08:25 and this intrinsic value we calculate.
08:27 And historically, we like a regression line
08:30 around the NIFT.
08:31 We are OK with that.
08:32 This is the steady state of the pendulum,
08:34 and this is the intrinsic value.
08:36 Now, market doesn't stay at intrinsic value.
08:38 It moves around that intrinsic value
08:40 based on the sentiment or behavior
08:43 or the expectations of the participation bias of the crowd.
08:47 Now, there's a behavioral indicator we've created
08:49 which tells us that.
08:50 Now, that indicator is still bullish.
08:52 We look at four different markets,
08:54 16 different parameters to look at it.
08:56 But that indicator is still bullish right now.
08:59 So markets are at fair value,
09:00 but can trend higher in the near term.
09:03 So as you said, tactically, they can trend higher
09:06 because of the bullish sentiment.
09:08 There is no letdown in terms of that.
09:10 - Got it, OK.
09:13 OK, point well taken.
09:14 Now, just wondering, for 2023, Nimesh,
09:19 one can argue that among sectors which did well,
09:23 banks, as a fundamental performance,
09:26 didn't have a bad year,
09:28 maybe because of supply or whatever,
09:29 the larger poster boys have consistently seen a pullback,
09:34 whereas maybe there are some idiosyncratic
09:36 mid-size, small-size banks which have done OK.
09:39 My larger question is, do you envisage a situation
09:42 where in 2024 could be a year
09:45 wherein banks could maybe do well
09:47 despite maybe potential NIM compression,
09:50 but because supply-side issues ease,
09:53 maybe the stocks may do well
09:55 relative to what they did in 2023?
09:57 - OK, let me first come to the market perspective
10:02 and then outlook from our side,
10:04 especially on the banking sector.
10:06 There are two things that impact
10:10 the stock price movement in the near term.
10:13 So typically you will see the crowd
10:16 always looks forward, right?
10:17 We don't look at historical numbers
10:20 and then look at the stock prices moving.
10:23 The market looks forward as to what is expected
10:25 in the future and then tries to discount that
10:27 into the prices.
10:30 The second part or characteristics of the crowd
10:33 is that when we are in a bull market,
10:36 when markets are moving up rapidly,
10:39 people want to, they reduce their investment horizon,
10:43 they shorten their investment horizon,
10:45 so they look at very near-term data,
10:48 month or a quarter that way.
10:50 Now if you combine these two characteristics,
10:52 people are looking forward,
10:53 but they are looking at very short term.
10:56 Any sector of stocks where you see
10:59 there is a near-term trouble,
11:00 people don't want to invest in it,
11:01 people try to ignore it,
11:03 saying, "OK, I would make quicker money somewhere else,"
11:05 and they start moving there.
11:07 And that leads to these valuations getting depressed
11:11 in companies that have shown some historical good numbers,
11:13 but are looking at some short-term issues,
11:15 maybe a quarter or two in the future.
11:18 I think that's what's happened with the banking sector.
11:22 We look at banking sector now coming to a fundamental view
11:24 on three different aspects.
11:25 You look at asset quality,
11:27 you look at their net interest margins,
11:29 and you look at their credit.
11:30 Their asset quality is good across banking sector,
11:34 we, I think, are swimming in the best of times
11:37 in terms of asset quality.
11:40 In terms of net interest margin,
11:42 there is some pressure expected
11:43 as deposit rates start going up,
11:45 so there could be some near-term pressure
11:47 in the margins of some of the banks.
11:50 And the third is credit.
11:51 I think if India is doing CapEx and consumption
11:55 is expected to do well in India,
11:57 even credit growth will be healthy.
11:58 I don't think it...
11:59 Maybe again for the near term,
12:01 between net interest margins and credit growth,
12:04 some companies may choose margins more than growth.
12:07 That can lead to some changes in numbers in the near term.
12:10 I think this is the reason why banking sector,
12:12 despite getting good numbers last year,
12:15 has in the near term underperformed,
12:17 and especially some of the private banks,
12:19 because they are seeing a little more pressure on that
12:21 in terms of deposit growth.
12:24 But these are short-term issues.
12:26 In the longer term, the banking sector
12:29 is extremely large part of the economy,
12:31 very important for various indices and for businesses.
12:35 So I think for a long-term investor
12:37 who can look beyond these short-term issues
12:40 and take opportunity of picking up some of these companies
12:44 at good valuations.
12:46 Let's talk about a big merger story from Dalal Street.
12:49 Reliance and Disney signed a binding agreement
12:52 to form a 70,000 crore joint venture.
12:55 Reliance has started off on a positive note,
12:57 but the other allied entities haven't.
12:59 And maybe this entity impacts
13:01 some of the other media businesses in the country too.
13:04 Smriti Chaudhary Johnson to tell us more about the details
13:06 of the merger and its implications.
13:08 Smriti.
13:09 Good morning, yes.
13:10 You mentioned about the valuation,
13:11 that's the whole valuation of about 70,000 crore rupees,
13:15 but let's kind of break it down a little bit
13:17 and look at the individual valuations.
13:19 If you look at the valuation
13:20 of Reliance Media business as a whole,
13:22 it comes out to be around 40,300 crore
13:24 based on the stake in the entity.
13:26 But if you look at the investments they have made
13:28 in their media business,
13:30 that's close to about 40,100 crore.
13:32 So not a lot of value accretion that's happening for RIL
13:36 from the looks of it.
13:37 If you look at Star India business,
13:39 that's valued at about $3.14 billion.
13:42 This is a sharp decline from its valuation
13:46 from pre-COVID levels that was pegged
13:49 at around 14 to $15 billion.
13:52 14 to $15 billion, that's according to Alara Securities.
13:57 So a sharp valuation decrease
13:59 for Star India business as well.
14:01 However, for Star India, this ends a long struggle
14:06 that Disney has been facing in India.
14:08 They've been losing subscribers
14:09 after they lost IPL rights to Viacom 18.
14:13 And this is the digital rights that they lost.
14:15 But there's a lot of synergies
14:17 that are kind of coming together for this joint venture.
14:20 If you look at the total number of channels,
14:23 they'll have more than 120 channels and two OTT platforms.
14:27 They'll have access to over 750 million viewers
14:30 in India itself.
14:32 They will also have a monopoly in cricket.
14:34 And this is in a country which is a cricket loving country.
14:39 Viacom 18 owns digital rights of IPL.
14:41 Disney owns television rights for IPL.
14:43 But both of them are struggling to monetize these rights,
14:46 just to give you a little value
14:47 of how much these rights are worth.
14:50 They bought these rights
14:51 at a combined value of $6.5 billion.
14:53 Now, Disney also owns ICC rights from 2024 to 2027.
14:59 The merger, however, is set to improve the income
15:02 for Disney's sports segment
15:04 that they've been struggling with in India for a while.
15:06 This will also limit the volatility of net additions,
15:09 net viewers for Disney as well.
15:12 Now, overall, the earnings contribution for RIL
15:15 from the merger remains small in single digits.
15:18 This is according to Morgan Stanley.
15:20 But it provides a pathway for RIL
15:22 to kind of leverage on their digital platform
15:25 and improve returns and monetizations.
15:29 - Smriti, thanks for putting that into perspective.
15:31 Nimesh, coming on this one,
15:34 it's a space that has largely not created wealth
15:38 for a number of years now.
15:40 Is the space consolidating?
15:43 Is that good for broadcasters?
15:45 Or does something like this, a behemoth getting created,
15:48 create issues for some of the others,
15:50 particularly in the GEC space?
15:52 - Without commenting on a specific company-
15:57 - Yeah, yeah, I agree completely.
16:00 - The consolidation is the way forward here, actually.
16:03 And this is where we had so many companies
16:06 coming out with OTT platforms.
16:09 And I'm sure many have certain pockets of niches
16:12 where they are very strong.
16:13 Obviously, the merger that you were talking about
16:16 is two mega, large platforms coming together.
16:21 And it will definitely have impact
16:22 on the other players in the industry
16:25 quite significantly.
16:26 - Okay.
16:29 Sorry, just trying to understand this better.
16:31 So, if at all, would you be constructive on media at large,
16:35 or would something like this kind of make you stand up
16:37 and say, "Let's see how things play out.
16:39 "We can take a call later on."
16:41 - So, we have very little exposure to media space.
16:47 We have it through conglomerate only.
16:51 We don't have a direct exposure much in the media space.
16:56 We have better opportunities of growth stories right now
17:00 in the other sectors.
17:02 And this sector we'll watch for some time
17:04 before taking any decision.
17:05 - Fair call.
17:06 So, where are these opportunities now?
17:07 What are the first amongst equals, Nimish, to your mind?
17:10 - So, Neeraj, anything that is right now visible
17:16 on the table, like where you can calculate earnings
17:20 and come to a PE ratio, everything seems to be now
17:24 fairly valued or discovered.
17:29 And you can be a compounding story from here
17:32 in some of these companies.
17:34 But if you really want to pick up really high compounders
17:39 or high growth now in say, wealth creation,
17:43 one has to look at the market with a contrarian streak
17:46 a little bit, or look at companies
17:49 which are going through some short-term trouble,
17:51 businesses which are going through some short-term downturn,
17:54 and where the crowd has either reacted,
17:58 overreacted to a negative that has come,
18:00 or not reacted to some turnaround or positives
18:04 that are happening.
18:05 And so if you go fishing right now,
18:08 where you may find more fishes and less water,
18:13 so your chances of a hit rate are better,
18:15 are those companies or sectors which have underperformed
18:19 for the last three years or four years, and find that.
18:23 I find a lot of companies which used to be
18:26 among the companies called quality at any price,
18:29 in somewhere in 2018 or so,
18:32 and now for last five years, six years,
18:35 they have not performed.
18:36 Their earnings have grown,
18:37 their intrinsic values have gone up,
18:39 but these companies, the stock prices have not,
18:42 because they've not been exciting stocks to be there,
18:45 or exciting things to be there.
18:47 Several of them are in the consumption space
18:50 where one can find very good opportunities
18:53 to pick up some of these companies
18:55 across market cap category.
18:58 And private banks we spoke about is one such category also.
19:01 - Private banks is one such.
19:04 You mentioned consumption.
19:06 I was almost going to say that something tells me
19:09 that you are referring to chemicals/pharmaceuticals,
19:12 but you mentioned consumption, so sorry.
19:14 Let's talk about consumption first.
19:16 - We will add chemicals to that actually.
19:18 - Okay, fine.
19:19 I wasn't completely wrong there.
19:21 (laughing)
19:23 Okay, okay, so let's start with consumption.
19:26 Nimesh, the overarching view all of 2023
19:30 was that consumption is in this K-shaped pocket
19:34 where in the upper crust of the K,
19:36 premiumization is doing very well,
19:38 and the lower end isn't doing well.
19:40 The volume growth isn't coming,
19:41 the pricing power is not there.
19:42 There is local competition
19:43 which is eating into Pan India players.
19:46 Is that changing,
19:47 or is that the consumption you're referring to?
19:50 - So for now, it is not changing much.
19:54 So this K-shape continues,
19:56 even until say the last quarter numbers that we see.
20:00 We've seen a more premium and higher end consumption
20:03 doing very well, the lower end not so much.
20:06 Some reflection of that can be that rural
20:09 has not done much and urban has done a little better.
20:12 You will find areas like travel and tourism, hotels,
20:17 these have done better than say the FMCG counterparts.
20:21 Within cars, you see SUVs doing very well
20:24 rather than very low end cars.
20:26 So that K-shape frankly continues to now,
20:29 but there are green shoots of A, bottoming out,
20:32 or pickup in the rural side,
20:34 pickup in some of these other areas also.
20:37 So we are actually looking very closely,
20:39 keeping our finger on the pulse of the economy
20:42 to see if there are any changes happening on that side.
20:45 And because that's where market is quite pessimistic about,
20:48 market is not looking at any immediate trigger.
20:52 So those are areas we look for
20:54 whether the valuations of these companies are attractive,
20:57 whether the business can go back to growth.
20:59 See, again, we just finished analyzing the festive season,
21:02 but frankly, again, two quarters,
21:04 we'll be talking about the next festive season,
21:06 the next confluence season.
21:07 And you can't say that because the last one was like,
21:11 you know, had a certain X or percentage of growth,
21:13 next one will also be the same.
21:15 So we can see some pickup there.
21:17 We are seeing some green shoots coming in the rural side.
21:22 So consumption is an area
21:23 where we are looking for a pickup.
21:25 In terms of chemicals,
21:27 a lot of them saw some pricing pressure
21:30 and volumes being under pressure
21:32 because of inventory buildup.
21:33 Now it's a large space,
21:35 so we have to look at company by company,
21:37 but generally I can risk one generalization
21:41 that there is an improvement
21:42 across some of these chemical prices and volumes also.
21:45 Maybe a little bit of improvement
21:47 bottoming out kind of going through.
21:49 But again, when you look at two, three quarters
21:51 down the line or two years, three years down the line,
21:53 these are some of the companies
21:56 which are beneficiaries of PLI,
21:57 beneficiaries of China Plus One,
21:58 beneficiaries of global sourcing.
22:00 So I think that's an opportunity there.
22:04 Again, a small sector I'll add to this also
22:06 that real estate has just started doing well last year.
22:08 We saw real estate possibly continues
22:10 for the next three years.
22:12 And when real estate grows,
22:13 it affects so many different sectors positively,
22:16 whether you look at like cement and steel,
22:18 positively on say tiles, faucets,
22:20 some of these building materials that come in,
22:23 wires, cables, consumer goods.
22:25 So those will also start seeing an improvement.
22:28 Right now the market is not factoring in much from there,
22:32 but that's where some of this opportunity,
22:33 like if you can pick up good brands
22:36 and reasonable valuations,
22:38 they can be your compounders.
22:40 - Okay, okay.
22:41 Nimesh, just one quick follow up
22:43 because we are out of time completely on the show,
22:45 but do pharmaceuticals fit the bill as well?
22:47 And underperforming sectors
22:48 starting to show some turnaround?
22:50 - Oh, absolutely.
22:51 I think pharmaceutical has again,
22:54 some similar long way to go.
22:56 Some part of it, some part of the rally has happened.
22:58 I would say that US generates side of the business
23:01 has got good discounting.
23:03 I think people are now looking,
23:05 re-looking at some of the domestic stories,
23:08 especially MNC Pharma side.
23:10 We are very much interested in the contract research
23:14 and manufacturing side.
23:15 As we are expecting interest rates to go down,
23:18 global funding for some of these small biotech companies
23:21 or pharma companies is expected to go up.
23:23 And India is a fantastic partner
23:25 in contract research and manufacturing
23:26 to many of these companies.
23:28 So there is a lot of interest for them.
23:30 So we picked up these smaller,
23:32 or we looked at these smaller pharma companies
23:35 which are involved in contract research
23:37 and manufacturing and have capabilities
23:39 to take from kilo lab to tons.
23:41 And those can be the dark horses
23:44 or those can be the areas where pharma can also be.
23:47 - Nimesh, so good talking to you.
23:50 Thanks for taking the time out
23:51 and being with us on the show today.
23:52 Really appreciate your time.
23:54 - Pleasure.
23:55 Thank you to you as well.
23:55 - Thank you.
23:56 And viewers, thanks for tuning in
23:57 to this edition of The Talking Point.
23:59 (upbeat music)
24:01 (dramatic music)