Amit Khurana: Well, it could very well be the case. We have seen liquidity and even the slightest corrections are being bought into and that has sustained pretty much longer than what we anticipated. The only caveat I would add is that India has outperformed by a very wide margin against all emerging markets. So, there is a case that this needs to normalise.
Now, whether it will be a case that other markets keep moving up and we do not move up to the same extent or we do an absolute correction is anybody’s guess. Valuations in some markets are pretty stretched and therefore, the case for a serious level of outperformance for India from here in the near term, I mean to say, looks a little bit of a challenge. But over the the cycle, India remains the best emerging market to play over the next few years. But near term, some normalisation is required to get healthy market levels and price levels to enter.
What is the view on the chemicals basket? There is some fresh news flow that we are picking up that there is anti-dumping duty on one of the alcohol forms, IPA. This is positive for Deepak Fertilisers and Deepak Nitrite. If you track either of these companies, do you see them finally bottoming out?
Amit Khurana: Yes, chemicals is the only sector that has got an upgrade from our side other than the consumption names that we are backing. Essentially, it is a play that most of the capex programmes for the companies are going to get done away with FY25. Largely we have seen inventory corrections and especially in some of the specialty pigments, and specialty chemicals, some of the categories seem to be showing a much better visibility on the sustainability of price and the demand environment. Now, this is a very early view that we have taken, so it probably will require a much higher level of patience for these stocks to perform. Some have re-rated very materially.
Specifically on duty benefits, Deepak Nitrite much more. Overall, our preference is to play the chemical sector more from a bottoms-up perspective given the very varying business models that you have and each product has its nuances to capture. At this stage, we prefer Atul and Sudarshan Chemicals. We also like Fine because the balance sheet is well capitalised and very strong in terms of cash; the overall capex plan is just about starting. These are some of the names that we have backed up in the last few quarters and continue to back up those.
What about the housing segment? We have talked about banks at length, but housing finance sector and some of these key verticals wherein asset quality is a lot more ring fenced; would you want to bet on any of the names here?
Amit Khurana: Well, yes. We are playing through the affordable housing finance. We like Aptus as a name. And other franchises also show pretty strong growth numbers of between 28% and 30%. The asset quality has held up pretty well. While we do expect some bit of a margin pressure here and there, largely the demand environment and the ability of the franchises to underwrite pretty strongly remains very much intact. So, therefore, we are playing the larger consumption theme also through the affordable housing finance versus the real estate which seems to be pretty well captured right now.
Nykaa looks interesting. Is this a stock that you track?
Amit Khurana: Yes, the guidance has been pretty strong. So, the turnaround in the overall margin situation seems to be far more sustainable. We liked it at a certain price. But these kinds of movements do not excite us because we prefer allocating money when things are on the verge of a turnaround. So, there is a real momentum moving around. But yes, the turnaround seems to be far more sustainable and therefore, one needs to watch it very carefully.Just about every company is on a mission now to change itself. Aditya Birla Financials is rebooting itself in terms of businesses. Grasim has moved into paints. Aditya Birla Fashion is looking at consolidating the balance sheet. At a group level, they moved into jewellery. At UltraTech, they are acquiring new businesses. Is this group getting ready for a takeoff?
Amit Khurana: Well, yes, the evidence will show up in the capital allocation discipline. The challenge with some of these franchises and something that we have highlighted in our reports has been capital allocation.
Remember, the Tatas were in a similar situation before Chandra took the mantle of the Tata Sons and the capital allocation became a very important determinant of performance evaluation for the managers. So, I guess it is about time this capital allocation issue gets resolved at the group level, then I think there is a lot for them to cover. They have been in the businesses for a pretty long time and they have very deep reach across the country on a lot of these franchises which will help them to further drive the growth.
I am completely aligned with your thought process that a lot happening is there, but the real evidence will be the capital allocation performance and how that gets filtered across.
There is a listed company of Dolat Group, Dolat Algotech. What is that company all about? Is this part of Dolat Capital, the same group?
Amit Khurana: It is the same group company, but that is a separate business. It is run independently. So, no further comments on that. I am not authorised from the compliance angle to talk about that company at all.
Let us look at two time horizons. One, next three to six months, and then beyond 12 months. Identify a trade for us that could be tactical, three to six months, and something that is beyond 12 months, which could be structural.
Amit Khurana: Consumption should do well over the next three to six months, it should show up pretty well across the categories and if I were to look at 12 months, I would probably take a slightly more contrarian view, which is banks.
I think banks have to start re-rating. The lead indicators are all there. The supportive factors are all there, but somewhere the market needs to take cognisance of the franchises’ internal value, the underlying value. Over the next 12 months, hopefully we will get to see that.
