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00:00Let's get in a special guest, Ashwini Agarwal, founder of Demeter Advisors with us on the
00:03show.
00:04Ashwini, great having you and thanks for agreeing to talk on such a short notice.
00:08But we were pre-empting 23,000 this morning, hasn't quite happened, will probably happen
00:12maybe to the suppose of the day or next week.
00:14Are you constructive, Ashwini, on the markets currently?
00:16Good morning, Neeraj.
00:18Thank you for having me here.
00:20Pleasure is ours.
00:23You know, being constructive on markets in the long term, I think that's the statement
00:27I'd like to make.
00:28In the short term, it's very difficult to predict because we've got some very big events
00:31ahead of us.
00:33And also, I'd like to say that, you know, notwithstanding the election results and what
00:39they do to the markets, our markets are also being driven by what's happening around the
00:44world.
00:45And globally, markets, several markets are touching the all time highs and therefore
00:49India is following suit.
00:51But, you know, as we have seen in 2007 and prior to that into 1999-2000, you know, global
01:00events will determine the cause for the Indian market as well.
01:05And I think in several pockets, valuations are very, very expensive, very stretched and
01:09optimism is running very high.
01:12So while I'm constructive in the long run or in the medium term, I would say that there
01:17are pockets of exuberance in the market, which investors should be a little wary of.
01:23You're bound to see either losses or no money being made on a three-year or a five-year
01:28basis.
01:29I mean, one can't say what happened in the short run.
01:32Ashwini, a lot of talk around the RBI bonanza yesterday and what that did to markets.
01:38Now, do you think that impact has digested in a day or can it continue, especially for
01:43banks but markets at large?
01:44It's a large bonanza.
01:46No, it is.
01:47So I think fiscal discipline being set right and what the impact that it had on interest
01:53rates yesterday, especially on the long bond side, was accepted well by the market.
01:58And let's see what happens going ahead.
02:01I think the trajectory for interest rates looks to be stable for at least three to six
02:07months and then hopefully down.
02:09But again, looking through the comments of the MPC committee members for the latest committee,
02:15I think the consensus is building around a rate cut.
02:19And I think what's holding us back is that global rates are not looking to fall anytime
02:24soon.
02:25Inflation is also kind of well-behaved, more or less.
02:29So I think the RBI might hold off for another three months or so.
02:32But interest rates direction is what the market priced in yesterday.
02:37And I think that's got done.
02:40When the new government comes in, the fiscal budget they present and the fiscal trajectory
02:44they present would be very key to outlook for the medium term for interest rates.
02:50And that's something that I look forward to assessing as we go ahead.
02:54Ashwini, good morning.
02:56Tamanna here.
02:58You know, I'm wondering what is the real strategic thought of what happens June 4th?
03:05We've been so fixated on an election outcome, possible policy continuity.
03:12I think perhaps people are at the risk of losing sight of the bigger picture.
03:17What really changes in terms of expectations of what a new government do and how it translates
03:22into stock choices?
03:23You have that same basket, right, that you keep looking at infra, rail, defence, etc.
03:30What else is there?
03:31And how much more can that further rise?
03:34Good morning, Tamanna.
03:35Thanks for the question.
03:37So, you know, let's go back to what happened in 2008 and 2000, because, you know, the best
03:43that we can do is study history and take lessons from it.
03:47And in both those instances, when the market meltdown happened, the triggers can be what
03:51they were, that doesn't matter.
03:53Where you survived was that if you held reasonably valued stocks at the top of the cycle and
04:00you stayed away from the bubble stocks.
04:02Now, coming to your question on what happens post June 4th, the base case the market is
04:08pricing in is that the BJP comes back, fewer seats or slightly more seats compared to the
04:14303 that they had in the last Lok Sabha elections is a moot point.
04:19But nobody is expecting that BJP will not lead the next government.
04:23Now, if that were not to happen by, you know, which is not the consensus view right now,
04:31if by any chance that were not to happen, then I think there will be some question marks
04:36as to who forms the government, what their policy imperatives will be.
04:41And that might create a little bit of ruffling of the feathers among investors.
04:47And you might see some of the expensive stocks sell off.
04:50Will that happen?
04:52The probability appears very low and the market's obviously not saying so.
04:58So I think also I would like to add that sector specific policy might be different
05:04if it is a non-BJP government, especially relating to defense or probably railways.
05:10And they may allocate resources away to, you know, other areas of their focus.
05:16But I think broader policy direction, if you see since 1991, when, you know, Manmohan Singh,
05:26the Indian defense minister, you know, started the process of opening India's economy,
05:31it has been more or less consistent.
05:33I mean, yes, there have been, you know, some emphasis in one area versus another area.
05:37But broadly, nothing has changed.
05:39Even if you look at the current government, it has more or less carried on where the previous
05:46governments left off.
05:49And I think that process will continue.
05:51So I think, you know, as a medium-term investor, what I try and do is look past the immediate
05:57events and see what I own.
06:00Does it offer me value from a medium-term perspective?
06:03And do I think that I make a reasonable rate of return on what I own over the medium term?
06:09And I think that's the only way to invest, at least that's my view.
06:14That's a fair point, Ashwini.
06:17Directionally, then, what should investors and long-term investors look for?
06:22And investors especially who are riding on the India story, right?
06:26Do banks make a comeback, especially private banks?
06:30Interesting, you know, note from Chris Wood this morning on that point that they've underperformed.
06:35Infra plays.
06:36Any views on the Adani Group stocks?
06:38I'm also asking you that because, you know, they have been the big performer in the last
06:42couple of sessions.
06:44So on banks, I'm also reasonably constructive because, you know, finance stocks and BFCs
06:50and banks have kind of not done as well as the rest of the market, and valuations are
06:55still reasonable in that area.
06:57We are seeing no signs of any stress in the credit environment at this point in time.
07:03Margins are reasonably stable, so earnings growth is going to be reasonably strong.
07:08And at the PSU end of the spectrum, you will continue to probably see lower than normalized
07:15credit costs because of the recoveries that are going through the system.
07:17So I think banks across the board will do well, and private sector banks will also do
07:23well.
07:24And I dare say that some of the NBFCs will also do well because of the valuation support
07:28that they enjoy and the earnings environment that they are experiencing.
07:32I also think that pharmaceuticals, chemicals, especially upstream chemicals, where inventory
07:39drama that unfolded over 2022-23 and first half of fiscal 2024 is now behind us, earnings
07:45are starting to normalize.
07:47That looks very good.
07:48The pricing on generic drugs in the U.S. is reasonably constructive.
07:53So I think, you know, those two spaces also look reasonably interesting to me.
07:57I would also add that a few consumer names, and you have to be very careful bottom up
08:03here because valuations in the consumer space are still quite challenging, but there are
08:07opportunities out there also look interesting.
08:11And those would be the kind of three areas that I would like to look at.
08:16And, you know, I mean, infra, I think business is there, but I think valuations are challenging.
08:24So, you know, in a lot of places, so, you know, I don't really have that many ideas
08:29in the infrastructure space right now.
08:31And I'm staying out of defense and real for the time being, because as a value investor,
08:36you know, the euphoria scares me.
08:38They may continue to do well and continue to make a lot of money.
08:42I don't know.
08:43But I'd rather stay out of the party.
08:44Ashwini, hi, it's also Samina joining in.
08:47A quick take on rural consumption, you've highlighted a few sectors that you'd like
08:52and that you're constructive on.
08:54Of course, as we speak, I guess it's good omen.
08:56We have cushioned both a few years as we've hit 23,000 on the Nifty to record high as
09:01we see it.
09:02Good, good to look at for sure.
09:05But in terms of rural consumption, do you feel like that is a space that's worth calling
09:09a shot on maybe in the second half of FY25?
09:13Samina, yes, the answer is yes.
09:16So in the short run, what you're starting to see in the rural space, and I think it
09:21will play out in the June quarter as well, is the fact that election spending does put
09:25a lot of money in the hands of the consumers, especially in the hinterland.
09:31You do the math, 542 seats, the two are nominees, I'm leaving those out, multiplied by three
09:38candidates, multiplied by my assessment is 40 to 50 crores per candidate.
09:43So you're thinking about spending close to a lakh of crores in this election process
09:48and a large part of that money ends up in the hands of the lower half of the pyramid,
09:57you know, if you were to think about it.
09:59So I think rural demand will come back.
10:01On the medium term also, I believe that rural demand will come back because we are seeing
10:07three or four big trends.
10:09One is that agricultural prices, product prices have been reasonably constructive.
10:14B, I think we are also seeing a lot of manufacturing move deeper into India.
10:21And I think this is a very strong medium term story in India.
10:26We are seeing competitive federalism among states, states are working very hard to attract
10:30industry into their own state and encouraging them to go deeper into areas where they can
10:38get cheaper labor, more stable labor, less absenteeism.
10:43And all of this is very positive in the medium term for India as well as for rural demand.
10:47And last but not the least, I think, you know, the hangover of labor migration that happened
10:52at the peak of COVID is also now starting to stabilize with all the construction activity
10:58that's going on in various parts of India in real estate and infrastructure, which is
11:06attracting labor back from rural India.
11:08And there are money transfers that happen from urban to rural India, which also affect
11:12rural demand.
11:13So I'm reasonably constructive that rural demand going ahead will not be as weak as
11:18it has been in the last few years.
11:21And that is rural demand.
11:22And of course, Ashwini, thanks for extending this appointment a little bit, but I just
11:26want to dwell for a moment as to what's currently the market set up as at 23,000, because finally
11:32banks are starting to come back into the fray.
11:35So if you just look at, viewers, just look at the heat map today, or just look at the
11:39point contributors today, two days on a trot now, we have had HDFC Bank leading the pile
11:45of sorts, 0.61% higher, but let's get the point contribution for the Nifty on the screen.
11:50And you will see HDFC Bank being right up there when it comes to leading the gains on
11:57the index, 15 points, nothing dramatic, but leading the gains, L&T, SBI participating,
12:02a bit of an old economy flavor out here.
12:04And Ashwini Agarwal, that's the point.
12:06I mean, we saw the first buying from FIIs yesterday, there is still a lot of short positions
12:11on the FIIs on the index futures as well, on the market wide.
12:15Would you reckon that old economy banks, private banks, HDFC Bank, etc., if the market were
12:21to go higher, would probably lead the way because of the nature of the buyer being different?
12:27Because it can be the FII as opposed to the DII now.
12:31It could happen, but these things are very difficult to anticipate with any amount of
12:36certainty because India continues to be very expensive on a relative basis compared to
12:41several other markets in the world.
12:44The China market has done very well, commodities have done very well, gold has done very well,
12:48and there are different destinations for money for those trades.
12:54So FIIs have been net sellers of late, and I don't know if we can take a cue from what
13:00happened yesterday and extend that into the future.
13:04So that's not something that's very easy to predict.
13:07You're right.
13:08If FIIs were to ride the next phase of the rally, you would see more buying in the names
13:15that you mentioned, especially the frontline names.
13:18But as an event, it's very difficult to predict.