“It’s always difficult to find good companies, but there are enough tailwinds in a surging Indian economy to provide disproportionate growth in a few “maha” trends that we think are still very attractive,” he says. Edited excerpts from a chat with
Deepak Shenoy, CEO and Founder, Capitalmind:Your PMS has crossed the Rs 2,000 crore AUM mark. What is the kind of growth you are expecting in the next 1-2 years?Markets have been kind in the last few years, and our customers have placed their confidence in us to grow their wealth. We believe that a strong focus on customer service, steadfast discipline and the humility to change with the times will help build our customers’ confidence. We hope to grow with them, building on their referrals, India’s strong economic growth and our adaptive investment approaches.
The market has been rallying almost non-stop after the June 4 crash. How much of this is based on fundamentals and how much on retail investor-led liquidity?
It is difficult to gauge changes in core fundamentals in just two weeks, but it appears that there is a level of political continuity that is acceptable to markets. It isn’t just retail investors; by June 24, foreign portfolio investors have added Rs 13,000 crore into equity markets as well. In the short term, the markets are slaves of liquidity, and the inflows seem to be strong.
With such a large number of stocks trading at record high levels, how difficult is it to find stocks at reasonable valuations?
There will always be stocks at reasonable valuations, no matter when you look. It’s always difficult to find good companies, but there are enough tailwinds in a surging Indian economy to provide disproportionate growth in a few “maha” trends that we think are still very attractive.
How do you read the sustained rally in PSU stocks after the elections? If someone is investing for the next 5 years, does it merit to invest in PSUs?
As a phrase, “PSU” is too broad a term to dictate whether they are investment-worthy for the long term. Certain PSUs have strong balance sheets and incredible growth, while others may not have the same earnings momentum. Sectors where government spending drives economics for PSU players are likely to be impacted by budget announcements, too. We continue to own selective growth oriented PSUs in our Surge India portfolio with a long term view.
What are the expectations from the Budget from a capital markets perspective?
The budget is less important nowadays than it used to be earlier, and this is a mid-year budget due to elections, it is expected to be less impactful. Having said that, we believe that the budget will be oriented towards growth and creating job opportunities. The government coffers are full with a larger-than-expected dividend from the RBI, so we hope to see more infrastructure spending along with social measures. The key risks are any changes to capital gains tax that will hurt equity market participants.
Do you see a risk to the bull run from the over-exuberance seen in SME stocks, many of which are doubling on listing day itself?
Bull runs are always risky, and a lower-liquidity market area such as SME stocks is naturally more risk-prone, as liquidity vanishes in a downturn. However, it is impossible to predict when a downturn will occur, and whether current stock prices will move further up before such a time. Often, SME stocks provide room for previously unrecognized potential, so we might still see long term winners despite liquidity shocks.
Despite losses, F&O trading has become very popular since Covid days. How worrisome is this?
Much about F&O trading is moving to 0DTE options, which is being used as a mechanism to use leverage for speculative trading with instant gratification. This can result in tears if there are enough margin calls, or sudden intraday moves. In general, F&O has benefited exchanges and brokerages, while some retail traders tend to use it as a substitute for thrill or entertainment. There could be some systemic risk in such leveraged trading, as has been noticed in the past.
Which sectors do you think offer enough value even at this stage of the bull market?
We continue to invest in strong megatrends in the Surge India portfolio. These include:
- The government focus on import substitution through local manufacturing,
- Energy independence by the focus on renewables, nuclear and EV,
- Domestic consumption as India pushes its limits on travel, hospitality, leisure, brands and premiumisation
- Financialisation of domestic savings that are moving out of real estate and gold, and providing large growth for the ecosystem
- Infrastructure growth in road, rail, port and airports with increased government allocations
Surge India focuses on potentially disproportionate earnings and sales growth, and we believe that at current valuations, certain companies continue to provide a good long term opportunity.
No doubt that we are all bullish on India in the long run but as far as the near term of next 1 year is concerned, what can upset this bull market?
Bull markets are fickle. Markets can change on a changed narrative, for the short term. Any number of events can change course for the short term: from geopolitical changes outside India, to tax-regime modifications, to budget-specific measures, to monsoon impact and finally, to inflation stickiness in either the US or India. As always, something or the other will always appear on the horizon as a short term threat to markets, but we will refrain from calling for a recession or a crash. Economists have predicted 26 of the last 2 recessions, and we believe we will respond rather than fall prey to intellectually stimulating predictions.
