What do you make of the market setup right now? Ten days ago, we were talking about China. Some were talking about crisis in Middle East. Now, both those factors have gone in the backseat. So, do you think the storm has come and gone?
Mihir Vora: See, China was, in my opinion, a blip, frankly speaking because my view clearly is that China has had the best 30 years of its lifetime. And you never made money in 30 years, it started from a $500 per capita GDP to the current $9,000, $10,000, but stock market investors could not make money. So, now when they are at the peak of the demographics and declining and they are struggling for growth, how are you going to make money? So, it was I think for me always a blip. The good part is that in spite of the Middle East, oil prices continue to be subdued which means that there is the China impact of demand.
So, in general I think the macro setup is okay for India. Though I must admit that the last few data points have not been that great for India growth, which we hope will improve in the second half, which is GST collections.
If you look at the import-export data for last month, imports have actually fallen, which means that probably there is some slackening of demand and some commentary by some of the FMCG and two-wheeler companies, saying that the festive demand seems to be mixed, not as bullish as originally anticipated. So, I would say cautiously optimistic, because we are hoping that post monsoon and post Diwali, the momentum will continue.
So, if earnings are slowing down, which they are, whether you look at consumer, whether you look at capex or for that matter even in the aggregate economy because of GST collections, then do not you think markets should go through A) time wise correction, B) price wise correction?
Mihir Vora: Yes, but I am still keeping my fingers crossed, too early to take a decisive call because again, the GST collections, etc, number that we talk about are for August. We do not know how the things panned out in September and October, so fingers crossed.
The other thing that we are watching out for in the markets right now is how some of these auto companies are reacting. Take a look at Bajaj Auto, that stock is taking it on the chin right now and that is taking along the likes of TVS, Hero MotoCorp, etc, with it. So, the entire auto pack is down. Bajaj Auto is seeing a cut of a massive 8% right now. There was not that big a disappointment. Yes, there was a gross margin miss coming in and the overall number in terms of top line and bottom line was in line with expectation. But what would you say is your view on autos because very divergent trends in the sense that there is one part of the street which is saying there is high inventory, which will lead to higher discounting, etc, but then we are in that structural uptrend story.
Mihir Vora: Certainly. So, I would say that the bigger upside probably now should be in the two-wheeler space because they actually have gone through a long period of disappointment. Car, structurally growth has been only about 5% if you look at the long-term growth numbers. So, to that extent, cars I am not too worried about. But in the sense of two wheelers, those were the big disappointment for the last five-six years. And at least the last 12 months showed some signs of revival in that segment.
So, what could be the impact of this fat Hyundai IPO, 20,000 crore, that is money which gets out and now liquidity in a sense is just neutral, it is not positive. FIIs are selling, DIIs are buying. And then you have 20,000 crore which gets parked into this large issue. And there is Swiggy coming next and there are others also. So, how does it work there?
Mihir Vora: See, the supply-demand is very difficult to fathom because I do not think it is secondary market money which gets transferred to IPO. IPO creates its own set of demand. And if you look at the number of IPOs and correlate it with the number of Demat accounts being opened over the last few years, there is actually a high correlation. You are almost adding one to two crores Demat accounts every year now. So, it is not that fungible. And the core flows that we are seeing from SIPs, from your insurance flows, EPS, NPS, those continue to support the market frankly speaking.
So, where are you picking your spots in this market?
Mihir Vora: I still think that consumer discretionary has to pick up in the second half. Otherwise, we are in for a GDP downgrade, I would say, if that does not happen. And the whole theme of premium consumption, financialisation of savings, physical asset creation in manufacturing, real estate, defence, and infrastructure, I think those things have to continue. Otherwise, we are not on track to grow at 7%.
But are the markers indicating that there could be a revival after the monsoon when it comes to consumption in particular?
Mihir Vora: Yes, especially because, the state and central governments have been now spending, frankly speaking. Some of the state governments have announced large measures in the last 12 months for rural support, for the support of the poorer sections. So, I think that should hold up some amount of consumption.
The only counter to that and I mean yesterday we had that minuscule 3% of a DA hike as well, that inflation has gone up significantly higher than any of these measures.
Mihir Vora: Certainly, so that is why we are still more bullish on premium consumption. The lower end consumption probably will sustain. But the larger growth will continue to be on the premium segment. It is still a K-shaped as far as I am concerned.
So, RBI is talking about a 7% GDP growth, which means the nominal GDP would be 12-13%. What is expected to grow at 12-13% because IT is not growing at 12-13%. Banks are growing at just about 12-13%, depending on the bank you are talking about. Cars are growing at 4-5%. Capex, next year the base effect will kick in. So, what I am trying to understand is that 12% nominal GDP growth is given. But there are hardly any sectors where you can say that, okay, 12% to 15% or even 20% growth is there. Why is that?
Mihir Vora: See, the problem is GDP calculations are a bit complicated because 70% of our GDP is still services. So, when you talk about cars and etc, it is still part of that 30%. So, services inflation like medical, like your education, like your telecommunication, trade, logistics, etc, hotels, airlines, those also count in the GDP. So, while RBI is closer to 7%, I think the consensus is closer to 6.5 to 7 that kind of a range.
No, no, the point I am trying to say is that let us assume that something is growing at 7% and something is growing at 12%. So, if one assumes that RBI is talking about a 12% nominal GDP growth, there are some parts of the economy which will grow at 15%, which are those parts of the economy where you think that 14-15% growth for next two years is there.
Mihir Vora: See, those are the ones which are linked to physical asset creation I would say. Your infrastructure, manufacturing, capex, real estate is growing quite robustly. Not only urban but even rural real estate should pick up with the government support that we are looking at. So, those are anyway the high growth pockets that we are looking at.