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00:00Well, Vinay, Jai Singh joins in on this part of Talking Point as well.
00:04And Vinay, thanks so much for taking the time out.
00:06Usually we do a much longer conversation, today it will be slightly shorter.
00:09And we need to slip into a break as well.
00:11But before we do that, Vinay, can I start off with a bit of a micro?
00:15Because we've just talked to Apollo Hospitals.
00:17We've seen what's happened to some of the CDMO players last week on the results.
00:21Some of the pharma exporters are now talking of some fairly positive commentary regarding
00:27Revlimid and some of the others on the speciality sales.
00:30What have you made of all that's happening in healthcare?
00:33And if you have some view on the hospitals business, particularly because Apollo is in
00:36news today.
00:37Sure, Indira, thanks a lot for this meeting.
00:42You know, when it becomes difficult not understanding what's happening in China, especially, and
00:47what's happening to commodity prices, we believe, you know, go to your strength and the strength
00:52in the pharmaceutical and speciality chemical sector is domestic.
00:56So our focus is really on those companies which have good formulations, looking at domestic
01:01markets, which are growing pretty well.
01:04And here, you know, we like companies like Ajanta Pharma or RPG Life Science, which does
01:10not have much to do out of Asia, at least it's largely into Asia or more so into India.
01:16They're growing with the domestic formulation market, you know, growing probably 5 and 8%
01:21respectively higher than what the domestic formulation market are growing.
01:25So for us, it's much easier to look at companies focused on this than companies focused on
01:30CDMO or companies focused on the US generic.
01:34Having said that, contract manufacturing is something we really like.
01:37Here, niche players, where you're pretty confident on the market share companies like BlueJet
01:43is where we would focus on because, you know, they've got not one, but you know, three legs
01:47for growth.
01:48One is the Intermediate Inc, the second is the API.
01:54And the third is, you know, the concentrates which they make for sugar free.
01:58So you know, when you have a couple of legs of growth and a disproportionate market share
02:02globally, you're bound to do well.
02:05So that's the way I would look at it.
02:07As far as hospitals are concerned, we're currently being away from them, largely because of their
02:12relative last two years of performance.
02:14And more importantly, we think the return on capital employed for most of these domestic
02:17formulators or even companies like BlueJet a lot more higher.
02:23Vinam, are you worried about what could happen to risk assets, particularly equities, because
02:29of the valuations that we are trading at, and the linkages that you derive with global
02:34yields versus earning yields, and a few others?
02:37Or are you a bit sanguine about the prospects, particularly Indian?
02:42So my perspective, you're close to the worst being behind you, because if you look at the
02:46interest rate yields of US, the two year, 10 year chart, though, it's got worse now,
02:52you're pretty much close to, you know, 4.5 to 5%, so a negative yield of about 0.4, 0.5%.
02:58And everyone's talking about interest rate cuts, whether it happens in six months, or
03:03nine months, but interest rates cuts are come, you're pretty much close to peak, apart from
03:08countries like Japan, you know, where they're having some interest rate hikes everywhere
03:11else, you'll see interest rate cuts.
03:13So when you do see interest rate cuts, technically, you know, the economy does get better, the
03:19cost of doing any kind of business does improve.
03:22But this three months to six months, you'll start hearing a lot more about what has happened
03:27for the high for long interest rate scenario, which means you'll hear a lot of news, which
03:32is negative on the global front, on slowdowns of projects for the next three to six months
03:37or probably nine months.
03:39So I would be concerned about, you know, just exports or global slowdown, much more
03:44than a recession.
03:46But I think with interest rates being at its peak, if I were a one year investor, there's
03:51a lot of reasons to really smile out at.
03:54Okay, one comment out here, obviously, the geopolitical risk, which neither you know,
03:59I can take a call on, because of which crude is, you know, north of $90.
04:03That's something which all of us investors will have to focus on.
04:07Yeah, it's a bit of a moving target to focus on when you're right.
04:13Just wondering, though, you know, I keep on hearing conflicting comments about the Indian
04:20valuations as they stand.
04:22And what could that mean?
04:23Because the quantum of earnings growth that the markets needs to show for the valuations
04:27to justify.
04:29What's your sense here?
04:30And what pockets within this landscape do you reckon will live up to the earnings growth?
04:34Because the markets may well turn out to be a bottom up or a sector or stock specific
04:38market as opposed to a rising tide carrying all boats.
04:42I would agree totally with your last comment.
04:44But you know, firstly, on the first part of it, when we look at the Indian markets, if
04:49you look at the larger cap markets, you look at the broader indexes, they are not the same
04:53as what they were five years ago, there's a minimum change of 30 to 35% in terms of
04:58number of stocks and even higher in terms of the P. So, if you're looking at, let's
05:02say, BSE 30 or Nifty 50, and you're looking at 20 times one year forward multiples, remember,
05:10there's an Adani enterprise which has come in and a Vedanta which has gone out.
05:13So you can't compare valuations to the past, because the index level is not just the same.
05:20Having said that, I think what's important in India in the next three to four years is
05:26the stability which has come in in the past is here to stay.
05:30We're seeing the incremental GDP growth increase, we're adding about incrementally 15% of the
05:35world's GDP, but we're adding only 1.5% of the world's profits.
05:39And that's the same number we have in terms of the overall weightage India has in the
05:43overall indexes.
05:44It's too small.
05:45When we're talking about being the third largest player in terms of GDP in the world in the
05:50next five years, our weighted average number of 1.5% in everyone's portfolio globally is
05:56just too small.
05:58Having said that, I think look at a couple of things for India which are going our way,
06:03and lots of them are technical.
06:04I know you spoke about growth, but we'll reach there.
06:08First and foremost, the FII ownership in India is about 16.5%, too low.
06:13Last year saw a $25 billion inflow from FIIs and a $25 billion inflow from SIP and pension
06:21funds slash PPFOs.
06:25So you saw a lot of sticky money come into the country last year of $50 billion.
06:29If FIIs were to go up by another three and a half percent, go to the peak of 20 odd percent
06:35in this $4.3 trillion market cap country, you'll see as much as $150 billion of inflows
06:42come.
06:43Now that's not going to come one time.
06:45That's not going to come probably pre-elections.
06:48In the next three months, you're going to have elections behind you.
06:51And post that, I think there'll be a lot of liquidity coming in globally.
06:55Domestic liquidity also looks really good.
06:58The second big trigger, I think, when you're looking at India is so far, it's only the
07:02government which is focusing on CapEx.
07:05Obviously, the BGP manifesto made us all smile.
07:07There was the word manufacturing, which was written 59 times in the manifesto.
07:12So clearly CapEx is something which the current government will, if they come into power,
07:17will focus on again.
07:19But the corporate CapEx, once it starts growing, you'll start seeing the Indian economic
07:24growth being even faster than the 6.5% to 7%, probably inch up by 1% in the years to
07:30come.
07:31That's exciting.
07:32Earnings growth, even if you look at results, which have come up currently, you know, they're
07:35at the 16, 17% level, but we are obviously at the start end of results season.
07:41But if I look at bottom up, you're seeing about 15 plus percent growth come up this
07:46year and then higher growth coming up in the longer term based on our analyst growth.
07:51On your last question on pockets of growth and what would one focus in, I'm just sticking
07:57to what we learned from the BGP manifesto.
07:59Our areas of comfort are in the CapEx cycle, in the PSU cycle, in telecoms and autos.
08:07Now out here, you know, you've got power, utilities, you've got capital goods.
08:14So you've got water, you've got defense, all of these are making India stories or purely
08:21for India stories.
08:22Out here, if the earnings growth is north of 20 to 25% and the valuation are lesser
08:27than 30, in some of these cases are, you know, 10 to 15 times one year forward earnings.
08:33I think there's enough of pockets of growth.
08:35Coincidentally, all these sectors happen to be largely in the small and mid cap space.
08:41So I would focus a lot more on bottom up in the themes I just mentioned.
08:45They happen to be in small and mid cap, a lot more than large cap.
08:48So that's where I think there are pockets of growth.
08:51Well, good to know.
08:53A lot of people are skeptical on mid caps.
08:54Good to know that the pockets of earnings growth stay out there.
08:57We have just about time, a couple of minutes left for the show to end.
09:02Based on earnings thus far, I mean, I was just looking at the Q4 thus far.
09:08It's a very micro way of looking at it.
09:10But I was looking at Q4 thus far, solar companies, AMCs, maybe hotels, maybe real estate.
09:17These are the ones which have stood out in terms of earnings growth.
09:19Does the buck follow those, or will the buck follow estimates of what could happen, maybe
09:26first half, second half of FY25?
09:30So you know, interesting question.
09:31I'm just going to put an angle question to you.
09:34What do you think are the small cap and big caps in this full vintage, which have done
09:38well?
09:39So just smiling.
09:40But you know, I kind of gave the answer of the previous question.
09:43Most of the companies where the results have come out and where the earnings are good are
09:47small and mid cap companies.
09:49If it's consumption, it's consumption in those particular sockets, CapEx per se, just because
09:54the order book, remember India's growth in CapEx in the year 2024-25, just the incremental
10:01growth is as much as what they added totally in the year 2014, which was 1.6 trillion.
10:07So seeing the impact of that, you obviously saw that in Sterling and Wilson Solar, but
10:11you'll see the impact of that come up in a lot of capital goods sectors.
10:16Here the large cap space, where they've not got earnings in the financial space, you've
10:21already seen the trajectory come down for the large cap, from 35-40% plus plus levels
10:27to 15-20% in line with their loan group.
10:30Some NBFCs and wealth companies have done better.
10:34So when you're looking at it, you have to be bottom up.
10:37But again, I'm repeating, the large cap earnings growth are slowing down.
10:42That's unfortunate.
10:43Having said that, if you're looking at India, you want to be in growth, I think you need
10:48to be waiting for a quarter or two to see if corporate CapEx growth makes the large
10:54cap grow further.
10:55But the equipment vendors who are getting the orders, they're doing really well now.
11:00One more comment, if you're looking at global names like IT, where the results have come
11:04out which are literally tepid, you know, flat numbers on a year-on-year basis on the
11:08top line.
11:09I think the pain is still to come out there in the next quarter or two.
11:13So we will be ready for that sector, at least in the short to medium term.
11:17Okay, Vinay, we'll leave it at that.
11:20Thank you so much for taking the time out and being with us.
11:22But today was a truncated version of Vinay Jai Singh's time with us because of some compulsions
11:28that we had.
11:29Look forward to talk to you on a full blown conversation soon.
11:32Cheers.
11:34And viewers, that's it on this leg of Talking Point.
11:38Thanks so much for tuning in.