"There is consensus that real GDP growth in FY24 is likely to be close to 8 percent. Over last quarter, we have seen upgrades in GDP growth estimates, given the benign macro and inflation risks," Krishnan VR, who leads the quantitative research team at Marcellus, says in an interview to Moneycontrol.
He believes as a theme, premiumisation has worked out better coming out of Covid. The primary reason being widening demand chasm where lower middle class and below have come out with much lower purchasing power than the affluent class in the post-Covid era, says Krishnan with around 10 years of experience spanning both equity and fixed income research.
Do you see enough evidence pointing towards a general economic slowdown in 2024?
No, on the contrary, I think there is a consensus that the real GDP growth in FY24 is likely to be close to 8 percent. Over the last quarter, we have seen upgrades in GDP growth estimates, given the benign macro and inflation risks.
Risk from external supply shocks as always remains a wildcard, but the economy has overcome these well in the past few years, whether we take Covid or Russia- Ukraine war.
Do you still see significant investment opportunities in green energy and infrastructure space?
We are bottom-up investors and are sector agnostic. Also, we look for companies with returns on capital greater than the cost of capital and can deploy these excess returns as reinvestment to drive future growth. To that extent, we haven’t found many opportunities that suit our framework.
Have you seen several 'hold' rated stocks return to the 'buy' zone in the last one month, especially after a broader market correction?
I think it is still quite early to say anything definitive as Nifty 50 and BSE 500 have basically been flat over the last month. I would characterise the move in small and mid cap space over last month as more of a correction as aggregate market valuations had run considerably in some specific areas within the space.
I think the ability of individual companies to deliver earnings growth and sustain the outlook implied by their current valuations would be a bigger driver of re-rating in the coming quarters.
Are you worried about the impact of correction in midcap, smallcap, and microcaps?
Smallcap returns in India also tend to be cyclical with a sharp run-up every 2-3 years. Previous peaks reached in 2008, 2011, 2014, 2017, 2021 were inevitably followed by drawdowns of various durations and intensities.
Since 2020, the Smallcap index has outperformed the benchmark Nifty in three out of the last four calendar years. Before this correction, the aggregate market cap of small cap space had reached a record 10 percent of the aggregate market capitalisation of the BSE 500 stocks. So, like I said before, the correction at least at the index level in smallcaps, microcaps and even midcaps is probably healthy to restore some semblance of balance in the market.
Some experts feel that FMCG companies are catering to the mass market where growth has not picked up. Do you agree?
As a theme, premiumisation has worked out better coming out of Covid. The primary reason being a widening demand chasm where the lower middle class and below have come out with much lower purchasing power than the affluent class in the post-Covid era.
The elevated food inflation over last few years has also hurt the mass market discretionary spends more. Against this backdrop, some FMCG companies like Nestle have continued to do well, through continuous product innovations and improving market reach of their products.
Do you see pockets of opportunities in sectors that have not participated in last year run-up?
IT and BFSI sectors underperformed broader benchmarks last year. Nifty and BSE 500 were up roughly 20 percent and 25 percent, respectively, versus 18 percent and 13.2 percent for BSE IT and Nifty Financial Services. Both these sectors also have larger, megacap companies, whose returns have trailed BSE 500 in 2023.
Our style of investing, however, remains sector-agnostic and we look to invest in high-quality companies with clean accounts, strong balance sheets, returns on capital greater than the cost of capital for long periods of time, and available at reasonable valuations.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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