India is managing its macro and geopolitical risks well and the economy does not see a major cause for concern as of now, Abhishek Banerjee, the founder and chief executive officer of Lotusdew, says in an interview to Moneycontrol.
Its important to keep watching out indicators like oil price volatility, treasury curve volatility, US yields and forex fluctuations to keep refining this view, he feels.
The chartered alternative investment analyst, who has spent over a decade in asset allocation, portfolio construction and quantitative investments, is bullish on sectors that have higher operating leverage and can increase their return on installed capacity quickly. This means that he bets on sectors like pharma, speciality chemicals and finished metal goods. Excerpts from the interview:
New-age companies are reporting better numbers than the past. Are you stepping up your exposure to them?
New-age companies provide an exciting exposure to new-age business models. They are able to attract excellent talent, have wonderful management and are hungry for growth.
However, they do lack a track record in public market, managing analyst expectations, and most importantly maintaining growth while demonstrating profitability. For these reasons, we prefer established companies with longer track record in public market compared to new-age companies.
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There are many opportunities in what we call micro monopolies which are established yet smaller companies serving a niche and dominating there. We prefer companies that are small and yet have limited competition due to some entry barrier they have created.
Do you think the Fed is done with the rate hike cycle?
It's hard to say. The last US GDP print was close to 4.9 percent - one of the healthiest in recent times hence there seems to be enough economic activity for more hikes. On the other hand, recent job numbers are soft and unemployment is rising. When GDP and unemployment increase simultaneously, it usually translates into greater productivity. More work is getting done by the same workforce.
I think this is something which is true for most countries now. The return on installed asset base in terms of people, plant and equipment is increasing. Hence, in such an environment companies that manage their ROA (return on assets) efficiently might win. This again ties back to the previous point about new age companies where to increase ROA they might need to reduce costs further - which can hinder their growth plans.
Do you see the slowdown in the US considering the economic data points?
As of now it’s hard to see any data points except rising unemployment to consider a slowdown. In the US, we do see, financial savings being converted to real assets and consumption. That provides economic activity for GDP growth.
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However, the yield curve has inverted and is the most inverted in last two odd decades. This is usually a tale of recession. The dilemma for macroeconomic asset allocators is to take these two opposing views and come up with an asset allocation to balance the chance for both.
Is the corporate earnings season in line with your expectations?
Yes, I think there was a decent show of corporate earnings this time. Most of the companies are focusing on productivity. The recent comment by Mr. Narayan Murthy also is an illustrative point how managements of different companies wish for higher productivity.
Do you expect any change in full year earnings estimates for FY24 and FY25 after first half (FY24) of earnings?
Usually full year earnings are revised down during the year as data points become available. Hence while initial estimates during the start of the year are optimistic as the year progresses, additional evidence is used to guide down or up the earnings. As an aggregate usually they are guided down.
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Do you see major impact on emerging markets like India given the concerns in the US, China and Europe?
India has linkages via forex and tariffs. This means how the dollar as a currency does has an impact on India as we import oil which is priced in the dollar. Moreover, most of the revenue of Nifty50 are export revenues so we are impacted by this from a Nifty performance.
That said, our view is that India is managing macro and geopolitical risks very well and we are not concerned as of now. It’s important to keep watching indicators like oil price volatility, treasury curve volatility, US yields, forex fluctuations etc to keep refining this view.
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Sectors that should be in portfolio on this Diwali 2023, which turn out to be Phatakas?
We are very bullish on sectors that have higher operating leverage and can increase their return on installed capacity quickly. This means, we like sectors like pharma, speciality chemicals, finished metal goods etc to name a few.
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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