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

Do you expect the Indian equities to continue to rally for the rest of the calendar year despite intermittent correction, and then to turn cautious ahead of the interim budget and general elections?

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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Is the rising oil prices a big worry for the Indian equities given the rising fiscal pressure?

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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Are you increasing your bets on the IT space?

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.

What are the factors you consider before making an investment decision with respect to stock in a portfolio?

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.

In your journey in the equity markets, any sector bet that turned into major disappointment even after making proper analysis of the sector?

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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Are you cautious on the midcap and smallcaps' after their superb rally?

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.

What do you broadly expect from the September quarter earnings season starting from next month?

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

JPMorgan to add Indian bonds to its Emerging Markets Index from June 2024. What would be the implications and will it be a significant boost to Indian bonds market?

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.

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