ETMarkets Fund Manager Talk- Why is India a safe haven for investments? Fund Manager Madanagopal Ramu explains
“There is a widespread optimism with regards to India – given the growth-oriented policies, stable government, and distrust elsewhere due to geo-politics and trade wars. India is, hence, being seen as a safe haven for investments and as a credible base as compared to many other small emerging nations,” Ramu said in an interview to ETMarkets.
Edited excerpts:
Equity markets have seen a good run in the last 3 months. What does your conviction say on the market trajectory for the medium term?
The market has seen a consolidation over the past 20 months, while earnings have grown >25% on an absolute basis in the last 2 years. Hence, from a value perspective, the markets have factored in a 25% discount and are trading at 17.0x FY25 P/E and 19.5x FY24 P/E. Markets have traded at similar multiples but with much lower earnings visibility during the 2018 and 2019 period.
With crude oil at $75 a barrel, inflation heading to lower levels and macro growth looking strong and being supported by manufacturing and services, we see a limited downside and expect markets to deliver a decent return over the next 2 years.
We expect the positive momentum to continue, while a positive news flow around a rate cut from the US Fed can be a trigger point.
While domestic economic conditions remain conducive, there are recession fears in developed economies. Do you see any major spillover effects of the same in India?
India’s market share in global merchandise trade is
The government’s push for domestic manufacturing and exports has a potential to more than compensate for the shortfall in the contribution from exports.
Therefore, India’s ability to sustain an economic growth of 5-6% in an otherwise gloomy global economy outlook, can lead to outperformance. There is a widespread optimism with regards to India – given the growth-oriented policies, stable government, and distrust elsewhere due to geo-politics and trade wars.
India is, hence, being seen as a safe haven for investments and as a credible base as compared to many other small emerging nations.
FII inflows are at a 9-month high. Do you see this sustaining in the near term and what are the triggers for the same?
Valuations have become reasonable, economic growth is being sustained, currency is stable, and opportunities seem to be rare in other economies. So, it’s difficult not to be positive on the India story.
The good thing about Indian corporates is that there is still a large pool of high growth, high ROCE and cash flow generating superior business models.
We expect FIIs to keep supporting the market at every fall and buy into quality franchisees available at reasonable valuations. If the interest rates start coming down, then a decent inflow would lift the markets to new highs, as per our expectations.
According to you, which theme will do well in FY24? Growth or Value?
It is difficult to define which one is a growth or a value opportunity in these markets. We tend to buy stocks only on identifying value in the investments.
Our primary investment objective is to make a 2-3x return in a 4-5-year period in a stock. It would be fair to say that we lean towards quality companies with levers to growth available, as current valuations tend to be reasonable.
Cheaper stocks (with weak business models) tend to face a mean reversion during periods of high flows, which was the case in 2020-21, which would be unlikely in the future.
Your “Voyagers” and “Rising Stars” funds have given handsome returns over a 3-year period, PMS Bazaar data showed. What’s driven this performance? Have you changed your portfolio strategy in any of them?
Rising Stars is a niche strategy, which offers investors an exposure to new and undiscovered small and micro-cap ideas which have the potential to generate superior alpha. We expect both the earnings growth and valuation re-rating to play a role in these ideas for alpha generation.
It is a 20-25 stock portfolio which fulfills our barometer of investing in stocks offering a +20% to 25% growth and a potential to double earnings in 3-4 years.
Voyager – we invest in multi-cap stocks which have potential to deliver long-term capital appreciation through investments in a mix of good structural companies and cyclical opportunities. We invest in sectors where we expect some kind of outperformance compared to the slow-growing conventional and utility-oriented sectors. Also being contra in cyclical sectors like auto, engineering, etc. by developing deep insights into industry cycles, provides large alpha opportunities.
How does FY24 look for India Inc? Which sectors will lead the earnings growth, and which will lag?
With reference to the broad economic outlook given above, we expect strong performance from growth cyclicals like 1. Financials – due to the demand for retail credit, 2. Consumer Discretionary – due to the growth of household income and 3. Manufacturing – due to the PLI scheme and the China+1 story.
We expect underperformance from information technology due to a global slowdown, Pharma – due to structural competition, Metals – due to the global/China slowdown.
FMCG might recover with the rural recovery in the picture on the back of better monsoons, but volume growth remains lacklustre for the high valuations these companies trade at.
What’s your mantra of generating alpha returns in markets?
One could make meaningful alpha while playing the India growth story by looking for opportunities beyond the Nifty 50. We see opportunities to invest in the themes highlighted above, which have the potential to generate our targeted returns of 2-3x in 4-5 years.
While diversification has helped investors during the last 3 years, following a concentrated approach hereon would be more favourable.
While investing in low P/E stocks yielded good results during the last 3 years, investing in reasonably valued good business models is expected to prove beneficial in the coming 3 years.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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