Vikas Gupta of OmniScience Capital believes foreign investors are still significantly underweight on India, but he expects this to change soon as the global rate-cut cycle begins.
As rates decline, emerging markets like India become more attractive to investors. Hence, he anticipates a significant increase in FII inflows during this rate-cutting cycle.
On the insurance space, "we don’t see any remarkable investment opportunity in pure-play insurance companies at the moment. Many of these companies are highly overvalued," said the CEO and Chief Investment Strategist at OmniScience Capital who has more than 20 years of experience in the capital markets.
On the defense front, Vikas Gupta who has completed the B.Tech from IIT Bombay, and MS & Doctorate from Columbia University said they have expanded their approach to the defense sector by including areas like energy security, strategic materials (such as rare earth metals), logistics, and cyber warfare.
Is it time to stay away from the metal space?
We wouldn’t take that stance. While there is some understandable concern due to short-term price fluctuations, it’s essential to focus on future growth opportunities, sustainable revenue, and long-term earnings growth. We evaluate the intrinsic value of a company based on normalized earnings or free cash flow. If a company’s market price is significantly discounted compared to its intrinsic value, it may present a buying opportunity.
Do you see investment opportunities in the insurance space?
While there are a few insurance stocks worth considering, we don’t see any remarkable investment opportunity in pure-play insurance companies at the moment. The sector appears reasonably investable, but many of these companies are highly overvalued from our perspective. Investors may find opportunities, but we’d advise caution given the current valuations.
Do you expect the RBI to cut interest rates this year, or will that come in 2025?
During the rate hike cycle, the RBI didn’t mirror the Fed exactly, but there was a general alignment in approach. The RBI was slightly slower in raising rates, considering domestic factors like controlled inflation. Similarly, during the rate cut cycle, we expect the RBI to follow a broad trend of cuts, though not necessarily in every step. It’s possible we could see a 25bps rate cut before the end of this year, but that would depend on domestic inflation data and the behaviour of the USD-INR exchange rate.
Have you shifted your portfolio from midcaps to large caps due to valuation concerns?
We’ve been overweight on largecaps relative to midcaps for some time, but this shift is driven by our scientific investment framework. We continually assess the market for the best opportunities. Currently, our flexicap portfolio has over 40 percent allocated to largecaps and more than 30 percent to small caps. The largecap universe, as defined by AMFI, consists of just 100 stocks, yet we find several undervalued opportunities there. In contrast, from the 150-stock midcap universe, we’ve found fewer attractive investments.
Have you added exposure to the defense and railway sectors during the recent market correction?
Yes, we’ve expanded our approach to the defense sector by including areas like energy security, strategic materials (such as rare earth metals), logistics, and cyber warfare. Many traditional defense companies, particularly those focused on arms and weapon systems, are overvalued. However, we are identifying new companies that fit this broader defense perspective.
In terms of railways, we’re looking beyond traditional railway companies to focus on logistics, as railways are at the heart of India's multimodal logistics network. The broader GatiShakti initiative is where we see long-term opportunities.
Do you expect the US Federal Reserve to continue cutting interest rates into 2025?
It’s widely anticipated that the Fed will continue cutting rates by 25bps in each remaining meeting of 2024. Looking into 2025, we expect rates will be cut in alternate meetings, but this is subject to change depending on the data. Overall, we are in a multi-year rate-cutting cycle.
Do you believe foreign investors are still significantly underweight on India?
Yes, we do. However, we expect this to change soon as the global rate cut cycle begins. As rates decline, emerging markets like India become more attractive to investors. Today, India stands out as one of the largest investible emerging markets with considerable long-term potential. We believe that as global fund managers evaluate the growth potential of various markets, India will emerge as one of the most appealing destinations. We anticipate a significant increase in FII inflows during this rate-cutting cycle.
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