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00:00 We are talking about the Alpha Strategist report from the Motilal Oswall wealth team.
00:05 This is the May issue of course, we are talking at the end of May.
00:07 It was titled Navigating the Mays.
00:09 We will try and understand from the two experts, Ashish Shankar, MD and CEO of Motilal Oswall
00:14 Private Wealth and Nitin Shanbhag, Senior VP, Head of Investment Products at the firm
00:18 about whether navigating the Mays for the month of May was easier or no or is the Mays
00:23 still in front of us considering that the big day is a few days away.
00:27 So you could argue there are two big days, Ashish.
00:29 Good having you back on the show and Nitin, as always good having you.
00:32 But you can argue there are two big days.
00:34 Monday will be the result of the reaction to the exit polls and then the final big day
00:38 as well.
00:39 But our strategies that were embarked upon in May, if there is policy continuity, Nitin,
00:46 or policy continuity, Ashish, stay the same if there is policy continuity, as I said?
00:53 Again, I like to actually set a context and like you know, normally the Jan note sets
01:01 the tone for the calendar year and the subsequent monthly notes are basically a continuation
01:07 of that view.
01:08 So if you recollect, the Jan note was basically titled Year of the All-Rounder and we believe
01:14 that most asset classes will do well this year.
01:18 At the same time, we believe that there are a lot of events.
01:22 This is an event heavy calendar year and hence people should have allocation across different
01:29 asset classes because you will have volatility as well through this year.
01:33 So if you take stock till May, I mean, I know this note was put out somewhere in the first
01:39 week of May, but we are towards the end of May.
01:41 So if you look at the performance of different asset classes, Nifty is up about 8%, Gold
01:47 is up double digit and debt is also done reasonably well.
01:51 So far, you know, that strategy of having a foot in every asset class has played out
01:57 reasonably well.
01:59 Okay, now let me set the backdrop for the rest of the year and we'll talk about how
02:06 May, and Nitin can talk about how May panned out as well.
02:10 So clearly, you just mentioned the two important dates, but beyond these two important dates,
02:17 Neeraj, what is playing out at the background is also interest rates.
02:22 So globally, what has happened is, although US is slowing down, if you see the GDP number
02:27 and if you see the unemployment numbers, at the same time, inflation has continued to
02:33 be very, very sticky.
02:35 And that's one of the reasons why the rate cut decisions have kept getting pushed back.
02:39 So now people believe that you will probably have only two rate cuts in this calendar year.
02:45 Now that is leading to rates remaining slightly sticky.
02:48 And you kind of extrapolate that to India, even in India, the rates have been ranged
02:53 on the 10-year has been around 7.75 thereabouts.
02:56 And if US doesn't cut rates, then the rate cut decision in India will also get pushed
03:00 back that much further.
03:03 One good news for India will be the inclusion of the Indian government bonds in the bond
03:08 index, the global bond index, and that could lead to some flows.
03:13 Now, keeping all things in balance, right, and if I look at equities as an asset class
03:18 first, valuations and equities are not cheap.
03:24 They are in the large cap space, they are reasonable to slightly expensive.
03:29 The mid and small cap space valuations are expensive.
03:32 So the change that we are indicating to customers is for incremental flows into equities, we
03:39 are telling them to go in a staggered manner.
03:42 And last we spoke, the view was 50% lump sum and 50% staggered.
03:47 But incrementally, we are saying you could look at staggering all your entry into equities
03:53 because there will be a fair bit of volatility over the next few months.
03:57 I mean, you have the Indian election outcome coming in next week.
04:01 But other than that, the biggest election for this year will be the US elections, right,
04:05 which is later this year.
04:07 And of course, all this noise at the backdrop, which is interest rates, geopolitics.
04:12 So it's a very eventful year and it helps to stagger allocations into the risk asset
04:17 class.
04:18 At the same time, we continue to believe gold and debt should be an integral part of the
04:22 portfolio because it will help you navigate this entire maze and ensure that if something
04:27 goes wrong, that you have one foot in an asset class, which typically does well in a crisis.
04:34 That's a fair point and as you can see, a bit of interesting change in that because
04:38 the markets itself will be volatile.
04:40 You keep your money going through a systematic route into equities, if you will.
04:45 Since you can't time it, maybe you'll buy it at the lowest point as well and average
04:49 it out at a slightly higher level as well.
04:51 So that's interesting.
04:53 And then bringing some data here, it may do anything, something specific in terms of either
04:58 the market movement or the earnings, if you will, because we now had four straight years
05:03 of double digit growth as well.
05:05 Amit Shah was on record just before you guys and spoke about how the growth will be driven
05:11 by a lot of new sectors in the next five year term.
05:14 How do you pencil in earnings growth over the course of the next, not just the next
05:19 12 months, but maybe the next 36 months?
05:21 Sir, the growth outlook continues to look positive.
05:25 After the last four years, just taking a few there, they're quite exemplary from an earnings
05:31 perspective.
05:32 The large cap, Nifty 50 gave about 16% CAGR, but the Nifty 500 actually grew at 18 to 19%
05:39 CAGR.
05:40 If you look at what the earnings have thrown up this quarter so far, the BFSI space has
05:46 been quite robust.
05:48 Non-BFSI has lagged a little bit, but in terms of a few sectors, some of the other guys like
05:54 capital goods continues to remain a very, very positive theme because the government
05:59 also continues to have its focus.
06:01 Building materials as the other space, given the tailwinds that real estate, residential
06:06 real estate as a sector is facing also looks to be fairly attractive.
06:10 The old economy sector should have a lot of tailwinds coming through.
06:14 Over the course of the next two to three years, we believe that at least the large cap should
06:20 moderate a little bit, but can still pencil in an earnings growth of between 12 to 15%.
06:25 Mid and small caps can grow slightly faster.
06:29 I think one needs to be fairly cognizant of the quality of stocks that one needs to get
06:34 into now because I think the mega rally somewhere is behind us.
06:39 Last fiscal, we saw a tremendous bull run on account of which mid and small caps did
06:44 extremely well.
06:46 Large caps lagged behind.
06:48 Today, what we are incrementally communicating is that one can have a bias towards large
06:52 cap and multi-cap strategy.
06:54 Mid and small caps, be very selective, but you can then stagger it out over the next
06:58 six to 12 months.
06:59 Earnings, like I said, we continue to remain fairly positive.
07:03 At least the next two years for now looks to be fairly reasonable.
07:07 Just to come in on the new sectors, you did mention that.
07:12 I think for India over the next few years, energy security is of utmost importance.
07:18 This entire focus on renewables, alternative energy, or for that matter, from a current
07:25 account deficit point of view, focus on things like semiconductor chips.
07:29 I presume these are some of the newer sectors which anyways have been doing well.
07:37 I feel government will probably lay much more emphasis on these sectors because they're
07:41 important from a security point of view as well as from an external deficit point of
07:47 view, these sectors become extremely important going forward.
07:50 Got it.
07:51 Guys, just one, unfortunately we don't have too much time today, but one last question
07:57 really, and that is on the fixed income now.
07:59 Ashish, you laid out the importance, but either of you can come in on this.
08:03 The RBI dividend plus the JP Morgan bond inclusion coming in, does that set the stage for a near-term
08:13 bond rally or is it difficult to call it?
08:17 Yeah, so we've already seen that the RBI's 2.1 lakh crore payout announcement, yields
08:26 came off from about 7.15 and they're currently hovering just below 7% as far as the 10-year
08:32 is concerned.
08:33 We believe that over the next maybe year or plus, we believe these yields should trend
08:40 lower also given the fact that we have been included not just in the JP Morgan index,
08:45 but also now in the Bloomberg index.
08:48 If we are able to put some kind of a cap in terms of fiscal deficit, there is no saying
08:54 why India does not deserve a higher credit rating world over.
08:58 We could be talking about an upgrade potential going forward as well, which improves the
09:03 chances of foreign inflows coming into the government debt market.
09:08 That then sets the tone for progressively lower rates.
09:11 We are not talking about anything immediately over the next 6 to 12 months, but certainly
09:14 over the next 1 to 2 years, we do see at least a 10-year plus kind of bond yield moving gradually
09:21 lower.
09:22 Got it.
09:23 Okay, let's wait if that were to happen as well.
09:27 And guys, maybe in the next update, which we'll try and do earlier as opposed to later
09:34 in the month of June, would be lovely to understand if the stance changes in any fashion whatsoever
09:40 because of one, the election verdict that comes out on June 4th and as the bond market
09:45 sees some of the flows starting to happen from the month of June.
09:48 So it will be a really exciting conversation when we get to the month of June and I'm waiting
09:52 for the title of the note as well, the very witty titles as they come out.
09:56 So looking forward to that too.
09:57 But gentlemen, both of you, thank you so much as always for speaking to us.
10:00 Much appreciate your time.
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