For the first time after many days, we have a proper confluence of factors at a global level which are against us. Do you think this could snowball into a larger fall?
Vikas Khemani: It clearly depends on how the situation pans out globally. So, in a way, much awaited correction has set in and which in a way I feel is good for markets. From a longer-term perspective in a sense like can it be a deep correction for Indian markets? I would not think so. Because the economic linkages of the Indian markets from a liquidity standpoint of view at this point in time are very low, unlike 2008 crisis, where we had lots of leverage coming from international markets and any impact would have impact back home. This time around, all those exposures are very-very limited. And sentimentally, there could be some impact from a short-term perspective, but I do not see any big structural deep cut in the markets.
In last two local instances, election day and perhaps the budget day when markets have fallen and if you bought the fall, you were rewarded. Do you think this time that may not be at play?
Vikas Khemani: I would say that probably given the global environment, it might remain extended and I think in our past conversations I said this year given the way markets have rallied, the return expectations should be low.
And again, probably the sectoral rotation would be at play. Sectors like pharma, defensives can end up doing well in this kind of market. But I think this kind of consolidation would be good I would assume, so one should not be in a hurry, but at the same time there is no need to panic. I am quite confident of the India story from medium term to long term perspective and also, I do not think there are going to be any repercussions from a sell-off perspective if there was to be any liquidity crisis, which I do not think at this point I am at least warranting. There are talks about potential slowdown in the US economy and all.
Probably a few months down the line, this might set out the pace for interest rate cut in US, which anyway is expected.
And if that happens, it will open up additional line of flow towards emerging market, including India. So, yes, I think we have to all navigate this period, in this period only, there will be lots of opportunities to shop, buy but no need to rush and hurry. Take time is what I would say.
What is the shopping list looking like? Is it going to be more of the same, the leaders of the last lap of the bull market or do you think something has changed this time?
Vikas Khemani: I think the way at least we look at it, same India story. Nothing changes on India story. Same manufacturing theme continues. I think financials will do very well. Consumption will do well. So, from India standpoint of view, I do not think anything changes. We continue to remain bullish on most of the sectors.
We will look for companies, at the end of it, it boils down to the company’s availability at the right price. So, you keep looking for your right price and right names and as and when they come, jump in and when we raise the new fund, we are still sitting on some bit of cash, so we will deploy them as and when we get to those opportunities.
That is not your view, you are not anticipating any sectoral churn, are you?
Vikas Khemani: Like I said, I think you will have always some sort of, like I mentioned that some defensives might come into play. Pharma has been doing well, which can continue to do well. Financials, we have been very-very positive and I think you saw a meaningful correction.
So, I think that can also happen. I think we continue to remain bullish on manufacturing as a theme, which will continue to do well.
So, some overpriced stocks, both in midcap and largecap, including the capital goods side can see some bit of a correction and that would be healthy one, I would assume.
On that point of commodity consumers versus producers, I mean, cyclical, commodities, they tend to do well but if the trade reverses, for whatever could be the reason, is it time to look at commodity consumers now because suddenly margins will look better, suddenly monsoon is now at play. I was looking at Colgate numbers, Britannia numbers, all of them have got their volumes growth back also.
Vikas Khemani: So, if your view is from a 3- to 6-month perspective, the answer is yes. But generally, if you see, all the commodity prices gains all have to be eventually passed on and all the players like in Colgate and all, they have not done well only because of commodity prices, because they have got the volume growth because of the business strategy.
So, ultimately it all boils down to the industry structure, company and what is there. Of course, commodity coming down in general helps to India, both in terms of inflation as well as overall cost of infrastructure, the flip-out side of that could be in short term, people who are sitting on inventories could have losses in their books because of inventory fall, so to that extent your corporate profitability might get impacted in short term because every user of commodity also carries inventory and that has a short term impact on the profitability part, so you could see that.
So, every time there is a sort of disruption happen in commodity, it always has a positive-negative impact and all of us have to kind of navigate through. Structurally it is positive but short term it could be negative.
When you say that you would be buying more of the same, what is that more of the same?
Vikas Khemani: Good quality companies, businesses which can deliver returns over a long period of time. But more importantly, like I said manufacturing is still a very interesting sector. In the short term they might have got out of hand, but as valuation corrects you would look at it.
Financials, we continue to remain very positive. We have seen correction. We might see some more correction in this fall. There will be, again, good picks in this time.
Across all four-five themes of India in my opinion opportunities could be looked at, which is consumption, manufacturing, infrastructure, and financials, and lastly, services.
So, the story does not remain same and fortunately India is one of the very wide, diversified, I mean lots of segments and opportunities are there. I think according to me, there are lots of choices and it boils down to the picking the right management and right valuation.
