Daily Voice | Inclusion of Indian bonds in JPMorgan index to help balance of payments issue, says Ambit's Sushant Bhansali

Sushant Bhansali is the CEO at Ambit Asset Management

The inclusion of Indian government bonds into the JPMorgan bond index was a move that had long been anticipated and is undoubtedly positive from a medium to long-term perspective, says Sushant Bhansali, CEO at Ambit Asset Management.

He believes the move would resolve the balance of payments (BoP) issue in FY25 and bolster the INR, making it a step in the right direction.

Bhansali, with more than 19 years of experience in asset management, says in an interview to Moneycontrol that IT services companies should continue to perform well in the coming quarters, citing the key thesis that markets are always forward-looking, and the rate hike cycle in the USA is almost over.

Ambit has been positive on the IT space since the beginning of CY23 and has already increased weights across all portfolios. Excerpts from the interview:

Indian equity markets have witnessed a decent rally in the last few months. However, the rally remains largely concentrated around small and mid-caps, while largecaps have generally underperformed. Nifty valuations still remain largely in line with the long-term average.

The earnings growth outlook is strong, and economic fundamentals are robust. All these factors collectively imply that Nifty and quality businesses have not yet reached what we would term as expensive. Hence, while market movement may not be as secular as it has been, the bias is generally positive. The strong flows also act as positive catalysts.

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In general, inflation has been an issue in the last couple of months. CPI has breached the RBI tolerance band and remained elevated. While, so far, it has been primarily driven by food inflation, crude oil has also added to the pressure.

We believe that this increase in inflation would not only be a concern on the inflation front but also for the BoP and CAD (current account deficit) in H2FY24. However, as long as inflation remains within the range of 7-7.5 percent, we would not expect any further rate hikes, only liquidity measures by the RBI. Markets are likely to look beyond this.

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We have been positive on the IT space since the beginning of CY23 and have already increased weights across all portfolios. The key thesis is that markets are always forward-looking, and the rate hike cycle in the USA is almost over. IT services companies should continue to perform well in the coming quarters.

There are several factors we consider. First and foremost, if they fit into our framework, we always stand by our framework at all costs. Second, an impeccable track record. Once these two are settled, then a strong top-down sector view, unleveraged balance sheet, steady profit growth, and finally, strong cash flow generation.

Well, you always hit some and miss some. Post-COVID, our top-down analysis told us that people would generally become more cautious, and we expected the insurance industry to perform quite well. We supported this thesis by investing in insurance companies in a couple of our portfolios. However, that thesis eventually failed, and we were forced to exit last year.

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Generally, yes, but we have always been fairly quality-conscious and believe in steady profit growth. We have consistently avoided cyclical names, which helps us maintain a stable return profile across market segments. So, in the event of a pullback (which is likely), our schemes should continue to protect capital during tough times and generate wealth over the long term.

Directionally similar to Q1FY24. Weak consumer demand, strong margin expansion. BSFI should do well while IT services should be soft.

This was a move that had long been anticipated and is undoubtedly positive from a medium to long-term perspective. It would resolve the BoP issue in FY25 and bolster the INR, making it a step in the right direction.