In an interview with ETMarkets, Cheruvu said: “We are currently overweight in industrials and healthcare and underweight in Energy and Utilities. However, our portfolio weightings are a combination of top-down and bottom-up,” Edited excerpts:
What a rollercoaster ride we are witnessing in markets. The market touched record highs but is now undergoing mild consolidation. However, the trajectory is on the upside only as all dips are getting bought into. What are your views?
Over the past few months, we’ve witnessed three significant market corrections aligning with key events such as election day, budget day, and the unwinding of the yen carry trade.
It’s remarkable how these corrections were swiftly absorbed, with robust buying interest driving the market to bounce back and achieve new all-time highs.
A key factor in this impressive resilience has been the structural shift in domestic inflows, which has brought much-needed depth and helped mitigate the impact of foreign institutional investor (FII) selling.The anticipated return of FII inflows in the latter half of the year, coupled with potential rate cuts in the US, is poised to enhance liquidity further.
This powerful combination is expected to uphold the positive momentum in the market, setting the stage for continued growth and success.
We are seeing a bit of volatility in the global markets. But the Indian market managed to climb all walls of worries and maintained its upward trajectory largely on strong macros and a fall in crude. What is your take?
The Reserve Bank of India (RBI) projects a robust 7.2% real GDP growth for FY25, supporting a positive market outlook. Inflation is expected to ease, with forecasts showing a decline from 5.4% in FY24 to 4.5% in FY25 and further down to 4.1% by FY26.
Fiscal consolidation efforts are progressing well, with public debt declining over the medium term. Corporate performance has also strengthened significantly, marked by deleveraging and improved profitability, further boosting market confidence.
These strong macroeconomic indicators are likely to sustain the upward trajectory of the Indian market.
The FMCG index has hit an all-time high, and we are seeing some smart moves in the pharma space. Is smart money moving towards consumption & pharma stocks?
We are observing a significant increase in interest in consumer goods and pharmaceutical stocks due to positive trends in both sectors. In the fast-moving consumer goods (FMCG) industry, there is a noticeable recovery in rural demand.
Initially, concerns arose earlier in the year due to below-expected rainfall, but rural consumption is on the rise with improved rainfall. Most FMCG companies are optimistic about the rural consumption cycle.
Furthermore, the recent decline in crude oil prices allows FMCG companies to pass on cost savings to consumers, contributing to increased volume growth.
The appeal of the pharmaceutical sector lies in its defensive nature. It is less exposed to economic downturns, making it an attractive option during times of economic uncertainty.
Additionally, the sector has experienced strong growth in the US generics market and increased demand for branded pharmaceutical products, driven by rising healthcare needs.
The strong quarterly earnings reported by many pharmaceutical companies have further supported the sector’s upward momentum.
Which sectors are you currently overweight and underweight in?
We are currently overweight in industrials and healthcare and underweight in Energy and Utilities. However, our portfolio weightings are a combination of top-down and bottom-up.
Which segment will lead the next leg of the rally—growth or value and why?
In the upcoming market rally, growth and value stocks could play significant roles, making favouring one over the other entirely challenging. India’s economy is poised for strong growth, driven by government initiatives in infrastructure, manufacturing, and the digital economy.
However, the medium-term outlook might favour value stocks, especially given the potential for volatility. Many investors adopt a blended approach, incorporating both growth and value stocks for diversification.
Ultimately, the allocation between growth and value stocks should depend on an investor’s risk tolerance.
We are seeing strong traction in the new-age stocks. Looks like the growth is now catching up. What are your views?
The recent rise in new-age tech stocks reflects the growing momentum in this sector. After initial high valuations and subsequent declines, these companies are now focusing on profitability and operational efficiency, helping them regain investor confidence.
What about the new listing of IPOs? Any business/new sectors that you think could produce the next leg of multi-baggers?
The Indian IPO market has gained momentum, especially during the pandemic, with more small businesses entering public markets.
Due to its robust economic growth, India continues to see strong demand and domestic inflows, creating opportunities for companies in emerging sectors to list and grow.
Factors such as first-mover advantage and unique selling propositions are crucial in capturing investor interest. The market is favourable for businesses leveraging technology, sustainability, and innovation.
We can expect high-performing stocks from emerging sectors like new-age technology, renewable energy, and specialised manufacturing, positioning them well for long-term growth.
How is India compared to other emerging markets in terms of valuations?
India has historically traded at a premium compared to other emerging markets (EMs) due to its large, profitable, and diverse corporate landscape.
Unlike many emerging markets heavily weighted towards lower-multiple sectors like commodities, India has a balanced representation of sectors across its benchmark indices, including technology, financials, and consumer goods, contributing to higher valuation multiples.
A significant part of India’s current premium valuation can also be linked to the underperformance of China, another major component of the MSCI Emerging Markets Index.
Over the past few years, China has faced a series of local challenges, leading to its market de-rating and underperformance. This has, in turn, reduced the overall valuation multiples of the EM basket.
Recently, MSCI’s adjustments, which saw the addition of seven Indian stocks to its standard index and the removal of 60 Chinese stocks, have further tilted the balance. India’s weighting in the EM index has surpassed 20% for the first time, while China’s has dropped below 24%.
This shift reflects India’s growing importance in the global investment landscape and the challenges other emerging markets face.
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