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00:00Manish Sonthalia, Chief Investment Officer, MK Investment joins in with his view and perspective
00:06on the markets.
00:07Manish, good morning.
00:09Thank you very much for joining us.
00:11The last few days pretty much came out of nowhere, yesterday in particular, so the markets
00:17declined quite sharply.
00:18I know historically we have seen FIs who rather wait, buy the premium after there is a conclusive
00:25event outcome as opposed to actually coming ahead of that.
00:29But as you see it right now, where do you think the biases sit?
00:32Do you feel like there could be some more buying coming in on the street or it's going
00:36to be a little bit of a pause before some bit of gains return?
00:41So, I think the recent events over the last few days has been to do with liquidation of
00:49some hedge funds, you know, India-dedicated funds, which had had to close down.
00:56And I think there was forced selling on account of liquidation of the assets that they had
01:01in the fund.
01:02I don't read too much into the fall apart from this.
01:06In addition, you have the regular volatility that comes along with any sort of elections,
01:11you know, as the election passes through the phases, you start with high optimism, then
01:18it gains in the middle, and then the likely scenario on the results starts to play out
01:23towards the end of the election.
01:24I think in India also, you know, started with 400 seats for the BJP government, now India
01:30government, and then now fourth phase, you hear on the streets that even 272 is not coming.
01:37And then I would reckon that as you approach the seventh phase, you could settle somewhere
01:42between 330-40, which gives you a majority on the government policy continuity.
01:47You have a whole lot of money sitting on the sidelines waiting to get deployed in India,
01:51even if it means a 10% higher from the current level.
01:54So I wouldn't believe that there's any reason to be simply bearish on India, you know, because
02:03the season has played out, numbers have been okay, and I think sentiments also are quite reasonable.
02:09Manisha, I guess it's not just elections, right?
02:13So while you have elections on one hand, you've got earnings that have not done very much
02:16to enthuse the street.
02:18You've got the Fed that's got a delayed rate cut from the look of it.
02:22You have China that's making a little bit of a comeback.
02:25You've higher commodity prices, anticipation at least, which will eventually impact the
02:30input costs for a whole bunch of India.
02:33But let's not forget that investors have made money.
02:36At this juncture, what is the advice that you're giving out?
02:40Are you advising investors to sit on some dry powder, take some profits off the table,
02:45instead of adding additional money into the markets?
02:49What is the strategy?
02:50What should the strategy be?
02:52What percentage of the portfolio should be on cash?
02:56I would believe that since we are towards the fag end of the election, then in any case
03:02medium term outlook on India is quite positive.
03:06On the back of high teens earnings growth on the benchmark Nifty for the next one, two
03:13years at least, you have valuations which are not very expensive.
03:18Earnings season for Q4 began with a preview of around 5 to 6% YOY growth.
03:26If you leave aside the metals and the oil and gas pack, earnings are in line with around
03:3315% sort of a growth, which is quite decent, I would believe.
03:38Yes, there is fear of some input inflation coming through, but that's going to work in
03:42favour of producers of commodities also.
03:47Pricing power is going to be important in that regard when it comes to users of commodities.
03:53And as far as the Fed cut is concerned, yes, the cut didn't come about in March.
03:59Then in the middle, you believe that there's not going to be any rate cut in this calendar
04:04year.
04:05And now the base case opinion is, no, there is going to be a rate cut this calendar year.
04:10And that rates in the US are not going to rise.
04:13All of these means that as soon as the bout of cutting of rates for the Fed starts, emerging
04:20market as a whole starts to benefit.
04:23Of course, emerging market has seen outflows, except for maybe a Turkey and a China, they
04:30are seeing inflows, but there has been profit booking across the board.
04:34Emerging market flows have been negative.
04:37And India has also seen a bit of FII selling, but that has nothing to do too much with fundamentals.
04:43I would believe valuations are quite reasonable.
04:45If one is not too overtly worried about the next 5% correction on the downside, I think
04:52it is a buy on dip.
04:54So sorry, it's a buy on dip.
04:57So you should not be fully invested, Manish, at this stage.
05:01I'm a little confused.
05:02If it's a buy on dip, then I wait it out, right, I'd imagine, or stay fully invested.
05:07Yeah, I mean, who worries about a 5% lower downtick on prices, if you are positioned
05:13in a portfolio for the next two to three years, I mean, it hardly makes a difference.
05:18So from that point of view, I'm fully deployed.
05:22And in case, in any case, we are asking investors that if they can top up the current correction
05:28in the market, then there's not been too much of a correction, so to speak, you had 22,600,
05:34on the upside on the nifty and currently, maybe you are at 22,000.
05:39So a 3-3.5% correction doesn't mean too much, but there is a lot of fear in the markets
05:46that the markets may have fallen a bit too much.
05:48But I would think that market positions are extremely light.
05:52There is apprehension on the results, which is keeping quite a few players away from the
05:59market.
06:00So we wouldn't fear too much on a next 5% even downside from current levels.
06:04In any case, if there is a top up, we would advise investors to stay fully invested.
06:10Manish, good morning.
06:13Neeraj here.
06:14The volatility and the reasons that you referred to has led to a fair degree of corrective
06:19moves, but I've seen the list of the top 15 losers on the BSE 500 say, all of them have
06:25come off because of very idiosyncratic reasons, results or RBI moves, etc., so on, so forth.
06:31Do the regulatory changes, for example, on the NBFC side, worry you about investing in
06:38that space as actively as you were maybe, or are you constructive on that pocket?
06:45So two spaces where there has been a lot of fear, one is the PSU basket as a whole.
06:50Of course, they have made humongous money for investors, but just look at the numbers
06:54that have been coming out of PSU banks in general, even public sector entities as a
07:00whole.
07:01I mean, those numbers are just good for the valuation that they are trading in.
07:05I would reckon that there's a whole lot of upside on the PSU basket, the PSU banks as
07:09a whole.
07:10But yes, there has been a lot of selling on the higher side whenever they seem to move
07:16up.
07:17But I would believe it's clearly misplaced, so to speak.
07:20As far as the NBFC space is concerned, that this is going to impact infrastructure funding,
07:26power sector funding, etc., I mean, listening to a few of these financial, power financials
07:31calls, I mean, they believe that it is in-depth accounting, wouldn't impact the P&L, the profit
07:38and loss account at all, is going to be taken away from the reserves, is going to at best
07:44impact Tier 1 capital of 2 to 3 percent.
07:47But in any case, they are sitting on a Tier 1 capital of 23 percent.
07:51This is just a draft paper, so to speak, whether it's going to impact the entire funding from
07:57the PSU banking side as a whole.
07:59I would believe that the apprehension is misplaced.
08:01In fact, you know, for it to get implemented, it's only going to strengthen the risk management
08:09systems in the system.
08:11So, you know, the size of the balance sheet of some of these NBFCs are going to be double
08:16at least between now and next 5 years.
08:19And of course, infrastructure, capital growth cycle, if it, I mean, if one believes that
08:24it is going to puncture the capital growth cycle and the infrastructure cycle in India,
08:28again, I would believe it's quite misplaced.
08:30So, these are apprehensions, you know, first of all, there is a draft paper applicable
08:35at the end of June and there's going to be discussion on this.
08:38And then, you know, how we heard the SBI chairman talk about yesterday that they are going to
08:43represent the PSU banking space concerns with the RBI on the draft implementation.
08:50So, it's not a given.
08:52And in any case, if it gets implemented or gets diluted in its implementation, I don't
08:56think it distorts the bigger picture of infrastructure creation and capital growth cycle coming back
09:02in a big way in India.
09:03So, actually, I was going to ask you a separate question, but my follow-up to my question
09:08is this, Manish, power financiers, it's a small bucket, three names maybe, largely,
09:13which are dedicated here.
09:15The CONCOL seem to suggest some extremely strong targets on the book size, on the profitability
09:24as well.
09:25And I think there was one Economic Daily, which was saying that the government may even
09:28revisit these draft guidelines too.
09:31My question is, they've run up quite a bit already.
09:34So, the low-hanging juice is out of the way.
09:37Are they still good investment candidates, the power financiers?
09:41100 percent.
09:42I mean, what valuations are we talking about?
09:46You know, if we think that these financiers are expensive, we are talking about single
09:51digit P multiples of 15 percent, at least a growth on the balance sheet and a NIM, which
09:58is the best in class, not of 3 percent.
10:01And if you talk about the balance sheet and the leverage, the Tier 1 capital stands at
10:0623 percent.
10:07So, the size of the balance sheet is a runway for growth, is immense from where we are.
10:13So, we are talking about some, both of these financiers, the bigger ones, combined balance
10:18sheet size in excess of 20 lakh crores in the next 5 to 6 years.
10:24And REC today maybe have a loan book size of something like just about 5 lakh crores.
10:31So, and, you know, Power Finance, in any case, is a holding company of REC.
10:35So, all of them put together, I mean, the size is miniscule.
10:38The runway for growth is good.
10:40I mean, they can grow very aggressively, but I would believe if they have to grow judiciously,
10:45then they should be growing at 15 percent and doubling the loan growth, loan book, which
10:52is pretty decent.
10:53And the valuations are very attractive from the point of view of, you know, compare it
11:00with the private sector needs and even so on the dividend age side.
11:04So, I believe they are clear buyers as far as the valuations and the fundamentals are
11:09concerned.
11:10Manish, hi, good morning.
11:11Tamanna here and I was listening to your initial comments on poll jitters and the number of
11:18seats expected, etc.
11:20I just want to understand why voter turnout is such an important factor for market participants.
11:27How does it matter?
11:29How, you know, beyond a point, how does it matter if instead of 400 seats, there are
11:34300 or 320 seats?
11:36I'm just trying to understand the thought process, because you're going to have another
11:40phase on Monday.
11:42There might be another set of lower voter turnout numbers coming in.
11:46And will we then see a similar reaction?
11:50Yeah, I mean, so if there's a continuity, then, you know, people tend to take it lightly
11:56plus the heat that is there across the country.
11:58Last time around in 2019, elections were in the month of April, which was not that hot
12:03when you compare it with the current times, the elections being held, let's say, the whole
12:08of May.
12:09And, you know, all parts of the country are pretty hot, so to speak.
12:13So that could be one of the reasons for the low turnout.
12:17And if there's a high turnout, it means that, you know, voters are enthusiastic for some
12:24sort of a change.
12:25But if there's continuity, you know, it's just that they don't want to go and vote,
12:30things are fine and good.
12:31I mean, that could work against the current India government is what the belief is.
12:36I'm not a great expert on politics, but I believe that strongholds of the ruling India
12:42government where there is a low voter turnout could be a case of concern.
12:46So, you know, that's the thing about election season.
12:48Everyone becomes an expert on politics at this time.
12:51But nevertheless, the market makes its decision based on what it perceives.
12:55I'm wondering, Manish, that would you gear up for more volatility till, say, the 3rd
13:02of June when your exit poll numbers would be out?
13:05And, you know, what would be your call in that case?
13:09Stay on the sidelines till the dust clears?
13:12Not at all.
13:13I mean, I would take advantage of the volatility to deploy as much as I can.
13:18You know, in any case, if there is any top up or new subscription that gets deployed
13:24the first day, because I clearly believe that, you know, the policy direction in the creation
13:32of the new government, you know, apart from, let's say, the budget jitters on the taxation
13:37front and the roadmap is pretty clear as far as the earnings trajectory is concerned, the
13:42policy continuity.
13:43And I would bet on that side, you know, the probability of the current government not
13:48counting power is slim, even though the probability is there.
13:52And really, I don't side with the guys who believe that, yes, there has been such a great
13:56run up in the markets that in any case, whoever comes to power, there's going to be a big
14:00fall in the market and give it a few percentage points.
14:05But again, once the markets have fallen, you have no other choice but to buy, because India
14:10is one of the highest growth countries in the world and you can't seem to ignore India.
14:14There's a lot of cash waiting on the sidelines.
14:17In any case, you know, SIP money is pretty decent.
14:21And on top of that, if you have SIP money come through, there's going to be a problem
14:25when it comes to quality stocks to buy.
14:27So if today it's available in plenty, I mean, best to lap it up.
14:32Right.
14:32Thank you very much, Manish.
14:34Great getting some perspective from you, especially at a time like this when there's a little
14:37bit of nervousness on the stream.
14:39There's so many triggers that the street and participants are tracking.
14:42Thank you.
14:43And we'll hopefully see you soon.
14:44And you have a good weekend ahead.
14:46Likewise.
14:46Thank you.