In an interview with ETMarkets, Ramdas said, “India deserves to trade at a premium and there is absolutely nothing wrong with that. But there are certain stocks and sectors where investors need to be wary.” Edited excerpts:
As we enter September, Sensex and Nifty50 have scaled new highs. What is driving D Street’s rise or is it just a wave of liquidity?
This rally has been driven by a combination of stellar performance and liquidity. The banking sector’s weighting in the Nifty 50 index is close to 18% and these banking companies have been posting robust growth in terms of both revenue and profits.
Secondly, on the liquidity front, despite the disappointing budget announcements, the market is holding up thanks to the large amount of liquidity waiting to enter the market.
What is driving the rally in communications, infrastructure and capital goods stocks, which have risen 20-30% in the past six months?
As markets recover, capital expenditure allocations are also increasing. Capital expenditure by private companies is projected to reach INR 8 trillion during 2024.
As stock prices rise, companies are raising more capital and investing that new money in capital expenditures.
That would explain the rise we are seeing in industrials and capital goods. In the telecom sector, tier 2 telecom companies, which are investing in equipment, are doing better than tier 1 telecom companies like Airtel and Vodafone Idea.
Telecommunications equipment manufacturers are performing well thanks to large orders from Tier 1 companies.
With the market trading at record highs, the IPO season is picking up pace. What do you think about the companies going public in sectors like fintech, EV, technology, e-commerce etc. Have they added more flavour or scope to D-St?
Frankly, we don’t see the value in those companies. They are coming to market at valuations that are too high for our liking. As for your question, it is encouraging to see new age companies going public.
Before 2021, the Indian market was primarily dominated by traditional industries such as banking, oil and gas, and automobiles.
SEBI has also expressed concerns regarding IPOs of SMEs, what is your view?
43% of the funds raised in the SME market were raised in FY24. Companies with thin asset bases, short histories and no or negligible reported profits frequently go public.
There have been 168 small and medium-sized IPOs so far in 2024. And what’s interesting is that the average return on these IPOs compared to their issue price is 96%.
We are living in an era where an issue size of Rs 50 crore can earn interest worth Rs 5,000 crore due to pure liquidity and gambling mentality of new investors.
Where is the sector rotation happening? Where is the smart money moving?
It may sound counterintuitive, but the sectors that reported the best results saw the highest FII/FPI outflows.
Banking and capital goods are the sectors where foreign funds are being withdrawn, resulting in reallocation towards consumer staples/FMCG.
Meanwhile, domestic institutional investors are increasing their allocations to industrial and auto stocks.
Which sectors are you overweight or underweight?
We are overweight telecom equipment makers, undervalued defence stocks and electronics manufacturing companies. India has always depended on either Chinese companies, Ericsson or Nokia for telecom equipment.
Now, domestic players have entered the space and are quickly getting orders from Jio and Airtel.
In the defense space, we see that companies trading at half the P/E/S multiples of 80/10x respectively across the sector as a whole have no red flags.
We are underweight the IT sector and have been underweight for a long time.
Let’s also talk about valuation, given the fact that we are trading at record highs. Are we “expensive” compared to our global peers?
Firstly, it is pointless to compare India with the Japanese or UK markets – India deserves to trade at a premium and will continue to do so for the foreseeable future, probably for the next 15 years.
Yes, there are sectors where cash flows through FY28 are already discounted and as a result are overvalued. In the case of some retail companies, stock prices are discounting earnings through FY26.
So to answer your question, India is worth trading at a premium and that is absolutely fine. However, there are certain stocks and sectors that investors should be wary of.
The IT index hit a record high in August. Can the gains be sustained amid talk of slowing US growth?
It will be hard for the IT index to ignore the challenges. A sales representative from one of India’s largest IT companies told me that with the US market getting tougher, they are focusing on winning smaller orders from Indian companies for now.
If this is the case for most IT companies, margins should decline even as they strive to maintain revenue growth prospects.
(Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. They do not represent the views of The Economic Times)
