Equities Stutter: Time To Rebalance Portfolios? | NDTV Profit
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00:00Nilesh Shah, MD and CEO of Envision Capital with us to talk about that in a bit.
00:04We will also get in with Mr. D.P. Singh, DMD of SBIMF.
00:07He joins us as well.
00:08Great having you gentlemen.
00:09Thanks so much for joining in.
00:10Nilesh, not quite what the exit polls were suggesting and it seems to be a razor-tight
00:17match right now for the BJP to reach a number of 250 let alone 272.
00:21Does this disrupt the optimism for equity markets from a medium term?
00:26I know the long term is great, but from the medium term, the next six months odd, does
00:32it cap valuations, does it cap sentiment or not really?
00:37Not surely, Neeraj.
00:39What we are seeing on the screen today is totally indifference to essentially what we
00:44saw on the exit polls or what was the popular opinion.
00:49So I think to that extent, if the numbers actually pan out the way what we are seeing
00:54on the screen right now, this will surely act as some kind of a short-term speed breaker.
00:59While I totally agree that nothing really changes from a long-term perspective in India's
01:05economic prospects, but clearly in the short term, as far as the markets go and select
01:10pockets of the markets go, this will surely act as a speed breaker.
01:14Nilesh, hi, good morning.
01:16Tamanna here.
01:17I was just looking at what is green on the screen and there's a lot of FMCG stocks as
01:24well, HUL, Britannia, Nestle, you could argue it's defensive play.
01:29But also, is there a sense if this is what the final number looks like, with a BJP 272
01:37and sub 272 by a distance, then the focus on rural distress increases, maybe more freebies
01:48or you know, you would call it more subsidies, etc.
01:52And then the focus is very squarely on bringing the rural economy up to par.
01:59And maybe that's what you're also seeing on the screen.
02:00So a bit of policy shift, if this is the final number that you have, NDA, third term, now
02:08the number at 292, but you have an NDA with a little bit of a different shift, which is
02:14not too eager to seem like they're only catering to those watching this channel or trading
02:20in the market right now or to corporates, etc.
02:23And that shift will be perceptible in policy push.
02:26That's what the street is looking at today, isn't it?
02:29Clearly, yes, there is going to be some bit of a risk of more for the markets.
02:33There's going to be a shift towards defensives.
02:36Clearly the best candidates for a defensive trade would be FMCG, IT and Pharma.
02:42This as a practice, this tribe essentially will probably outperform or is best poised
02:47to outperform.
02:48At least till we have the political uncertainty kind of going down.
02:53So I clearly believe that, yes, these are some of the sectors which could do well, particularly
02:57FMCG, I think is a strong contender for outperformance, not just because of the risk of more or because
03:04it's a defensive bet, but also because rural spending has already seen green shoots.
03:10Rural spending, which was kind of quiet for maybe about the last two or three years, that's
03:16essentially seems to be bouncing back.
03:18So that's first and two, there's been a pull off in crude oil prices.
03:21And that's obviously good news for FMCG because that's a key raw material, it is crude oil
03:25based products, which will drive gross margins, drive net margins and will drive earnings.
03:30So I think right now, there's a confluence of several positives for the FMCG companies
03:38and for all businesses which are oriented towards rural spending.
03:42I think two wheelers also fall in that category.
03:45So this, I think overall as a pack is expected to outperform at least between now and July
03:51when we see essentially the budget for the full year, which will definitely give us a
03:56glimpse or a canvas of policy reforms and what to expect over the next few years.
04:05Mr. Singh, good morning and thanks for joining in as well.
04:08Would you echo that, that we may see a different policy because in order to form the government
04:15this time around, a support of allies is also necessary.
04:20And if the UP verdict as it stands is anything to go by, there seems to be a question mark
04:29on the CapEx drive, or maybe so.
04:32So I'm just trying to understand if you think the markets would think like that.
04:34No, good morning.
04:36First of all, yes, I partly agree with what Nilesh has said, but at the same time, the
04:42CapEx cycle, I don't think that will happen because in any case, the employment generation
04:48or employment is being an issue, is now the more employment generation has to come from
04:54private sector rather than the public sector.
04:58The position which was taken, so the CapEx cycle, you specifically talked about UP, and
05:04I think that things are going to continue the same way because these are the elections
05:10and it's more than sentiment, we have to talk of the arithmetic also, when SP and Congress
05:17were fighting together.
05:20And if you look at the old numbers also, there was likely that there will be some surprises.
05:26The exit polls were a little surprising, but these numbers are not surprising, honestly
05:31speaking.
05:32But I think one thing is coming clear that India will form the government, it looks like
05:39as of now.
05:40But as you say, we in Mutual Fund, we always play a long game, we never look at the short
05:45term or very, very medium term.
05:47So we are absolutely right, India's growth story is intact, CapEx will continue.
05:52And I don't think immediately after the election, there's going to be a big shift in the policy
05:58that the freebies or other things will come in for, I don't think so.
06:02The major event is going to be monsoon rather than the political cycle.
06:07So we are confident that we're going to continue.
06:11But this one day 2000 points plus and the other day 1500 minus, these are okay, these
06:17are the things which are expected, this hyper political activity.
06:22But overall, we are quite confident that we will continue to be in double-digit green
06:27zone over the period of time.
06:52Maybe yes, Sameera, to a small extent.
07:20But I think investors would probably be well advised to calibrate their purchases or their
07:26investments.
07:27Keep in mind that we've had an up move, which basically, again, factored in that the existing
07:33coalition and the existing leader of the leading party of the coalition will kind of come in
07:39with a significant majority.
07:42So obviously, of course, the math or the arithmetic has kind of got disturbed, especially what
07:47we see right now on the screen turns out to be true.
07:51So I think to that extent, probably being a bit calibrated might be extremely useful.
07:58And that might yield better outcomes.
08:00Maybe one could use the time between now and say July, which is when you will see the budget
08:06by the new government.
08:08That period could be a period of bit of uncertainty.
08:11And I think markets don't like uncertainty, which can create, you know, downsides in the
08:16markets.
08:17And you could see downsides in different sectors at different points of time over the course
08:22of maybe the next six weeks.
08:24So I think one has to essentially keep these things in mind.
08:28Another thing which I would just like to bring in a historical perspective that right now
08:32we think probably that if there is any, basically the outcome has not been in line with which
08:36was expected, may not augur well for capital goods or not augur well for manufacturing
08:42or may not augur well for real estate.
08:44But keep in mind that if one flashes back to 2004, when of course the outcome was totally
08:49different and we saw a sharp cut, but after that we saw the bull market continue in India.
08:57So and that bull market went all the way up to January, 2008.
09:01So if I were to kind of use a similar corollary to what happened then, we probably had the
09:07lows of the markets in 2001 or 2002.
09:10And after that, we had a six to seven year bull run.
09:12Similarly, if we assume 2020 to be that low point for Indian markets, from there, this
09:18bull market would at least have a lot more leads than what we would imagine.
09:23And I still think that the leadership, which has been with sectors like energy, manufacturing,
09:29infrastructure, real estate, that path may still not lose the leadership.
09:35So I think we need to keep in mind and look back at history, what happened then and what
09:39happened now.
09:40What changed in 2004 was that post 2004, PSUs as a pack underperformed.
09:46And that essentially we have to bear in mind that maybe the PSUs which have run up so dramatically,
09:52quite meaningfully over maybe the last two to three quarters and over the last two to
09:56three years, there I think probably there might be an elongated speed breaker, provided
10:02what we see on the screen right now turns out to be true by the end of the day or by
10:06tomorrow morning.
10:08Singh Saab, Tamanna here, great to speak with you today.
10:10And I think today is also a day for a message for mutual fund investors and investors overall,
10:16not just those who are looking at the screen today and the markets today.
10:20Because they have put their faith in the long term growth story of India and that hasn't
10:25changed, is it?
10:27No, definitely.
10:29Long term growth story remains intact.
10:32This is the time when people have to start contributing more and more to participate
10:37in the growth story of the country.
10:39It looks like, yes, short term there will be some volatility, uncertainty which we are
10:44talking about.
10:45But long term story definitely continues to be unweighted and more and more people and
10:51actually these corrections giving the chance to the fund managers to deploy their cash
10:57or whatever money is coming in at the right kind of valuations.
11:05Well, Mr. Singh, another quick word from you on, would you consider rebalancing your portfolio
11:12at this stage?
11:13Maybe a market neutral strategy, move from broader market stocks to more large cap focused
11:17names?
11:18See, it's an ongoing journey which keeps on happening every day in and day out.
11:25But definitely when these big moves happen, that gives better opportunities for the fund
11:31managers to rebalance their portfolio, keeping in view what is in store.
11:36So definitely they'll be taking calls today and not only with us, but everywhere this
11:42will be happening.
11:43These moves are definitely helping the fund managers to rebalance their portfolios.
11:47That's correct.
11:50Okay.
11:52So one quick follow up.
11:53Actually, the same thing to Nilesh as well post that.
11:57The other macro, right, there is a large dividend, which might help push, I mean, keep the fiscal
12:02glide plot intact.
12:03There is a JP Morgan bond inclusion due.
12:06What about a bond portfolio currently?
12:08Is it a good time also because the optimism around equities in the long term stays, but
12:15in the short term might get tempered a little bit?
12:17Yeah, yeah.
12:19No, no.
12:20Two parts.
12:21As far as equities are concerned, any player who is coming through mutual fund route is
12:24likely to come for a long term and is coming through long term.
12:29That is being certified by the SIP story, which is there.
12:35That continues unabated in whatever numbers we have.
12:37Every month we are adding more and more number of people joining the equity markets for long
12:41term.
12:42That stays.
12:43And now three billion dollars coming every month through mutual fund route in maybe next
12:49six months is going to be a great stabilizer for the markets.
12:53As far as fixed income portfolio is concerned, yes, there is an opportunity if you look at
12:59it last two days or so, especially after the great dividend given by RBI to the government.
13:08It's definitely this thing that the deficits will come within range and now there are so
13:14many news, JP Morgan index inclusion, as well as other global factors are definitely hinting
13:22towards that one, our currency is going to remain stable and second, there's more and
13:27more interest of people from outside India also to put more and more money into the fixed
13:35income portfolios for a long time.
13:39So that is there and that is also evident for the last two days as yields cooling down
13:45and that's something sooner we participate better it will be for the investors to make
13:51more money into the fixed income portfolio.
13:54Ayesha, do you think the focus will now very quickly move to policy on the 7th followed
14:01by the budget and as much as till yesterday afternoon we were talking about our FIs would
14:07be so disappointed, they missed the rally, they were sitting short, they were hedged.
14:13Seems like they might be having the last laugh in today's session.
14:16But what do you feel, what happens between now and the budget?
14:19Would you consider reaching your portfolio at all?
14:22Oh, absolutely, Samina.
14:25I mean, obviously, it's not going to be a major overhaul because our portfolios are
14:28a bit diversified.
14:29Yes, there would be a few sectors which where we probably have larger allocations.
14:34But as we speak, we don't own any state-owned bank, state-owned stock or any PSU stock.
14:41So to that extent, you know, one doesn't need to change much.
14:45But yes, I think a lot of stocks which one probably had given a pass because of elevated
14:49valuations if we essentially see softness in stock prices, we would essentially be proactively
14:56looking at them and wanting to invest into them.
15:00So I think like what I said earlier, that some of the pillars or the pillars in terms
15:04of the investment canvas remains intact, which is on one hand, the energy, the manufacturing,
15:11the infrastructure space.
15:12I still think that I continue to believe that they will continue to lead the bull charge.
15:19Then there's, of course, the steady compounders or the long-term compounders, which essentially
15:23are the financials and consumer names, which essentially continue to move on.
15:30And lastly, I think online businesses, digital businesses, niche technology services, which
15:36are more a global play will also essentially be a part of the portfolio.
15:40So I think this broadly remains.
15:43I think the area that one has to be a bit careful about is the PSU pack.
15:47And also, I think in terms of the infrastructure and the cap goods, you probably will get more
15:53attractive entry points over maybe the course of next four to six weeks.
16:00Okay, gentlemen, we leave it at that.
16:02Thank you so much for taking the time out and being with us.
16:04Really appreciate both of you talking to us on this very important day.