Santosh Joseph, Founder and Managing Partner of Refolio Investments and Germinate Investor Services LLP, believes private banks are available at an lucrative valuation and says he wouldn't be surprised if they drive the market rally from hereon.
In an interview to Moneycontrol, Joseph says one cannot completely ignore the FMCG space and has to keep in mind that India is largely consumption oriented. Edited excerpts:
Do you think the RBI will change its policy stance in April and cut repo rate by 100 bps in FY25?
It is very unlikely that the RBI is going to change its stance on the policy. However, I think they will wait out for two important guidelines:
1. They would want to see if the US Federal Reserve change its stance before they themselves do.
2 We haven’t necessarily seen inflation cooling off in a big way, thus there is no reason for any immediate step or even being ahead of the curve than the Federal Reserve to be considered by the RBI.
Thus, I think an expectation of this sort is not going to be very conducive. It is better to go with a neutral stance for now and wait for real input data and what the Federal Reserve is doing globally and to follow through on that.
Do you think the market is in the middle of a pre-election rally? Does it mean the market is confident about policy continuation?
I think that at a certain level, the market has been on a pre-election rally and one could say that this began in early December, with the state election results coming forth. Now at some level, when you see the market holding up very well and even being robust at a higher level, it shows the intrinsic strength of the market.
Also read: India’s macros were inverse of China for decades, Modi’s reforms changed that: Jefferies’ Chris Wood
Also in terms of a build up towards the general elections, the market remaining buoyant and the market looking strong and positive is also an indication of the confidence that people have in the election outcome and the continuation of the policies that are already in place. Thus, it is a combination of a few things:
1 We have a strong confidence level of the election results being in favour of the markets.
2 We also are in a robust market situation leading us to believe that we are in a pre-election rally, and I think when the actual election results come out, we may see an even bigger rally or a bigger pricing in terms of the results of the election.
Is it time to bet on FMCG space? Are you taking exposure in the space, given the significant downtrend in the sector?
One cannot completely ignore the FMCG space and you have to keep in mind that India is largely consumption oriented. Now, while FMCG space has taken a back seat and some of the valuations are also looking much better than a couple of years ago. I think taking selective exposure is almost like investing a little early in the curve.
I think that FMCG should be an integral part of the portfolio. What does vary, is the amount of exposure, the weight that you take time-to-time based on the valuation parameters and even looking at the overall structure of the market.
Also read: India leading the new era for Asian equities, says Morgan Stanley's Jonathan Garner
Do you think the private banks will be in the driver's seat from here on?
Private banks are clearly available at an extremely lucrative valuation right now as we look at it. From a plain perspective, many of them have not lived up to the performance of the larger broader market in the last two to three years. Secondly, many of them are well placed right now on the NPA side.
I think it’s reasonable to believe that when we have a market rally from here on, there will be a good amount of participation by private banks because at some level they are a very secular theme and it’s a very important component of the broader markets too. So, I wouldn't be surprised if the private banks are in the driver’s seat and actually take the market rally further on from here.
Do you think the run-up in mid, small and microcaps will continue in the coming years?
In the last 12 to 15 months, midcap, smallcap and microcap ran ahead and did so well when very little expectation was there. Now, after the delivery of superior returns, there is a lot of expectation and anticipation.
When it doesn’t catch up to that level or doesn’t happen across the board, from here on there could be selective play in some individual stocks in this space. It cannot be generalised and when people miss the opportunity, that’s when there’s a lot of disappointment that creeps into small and midcaps. I don’t think the story is over but I also don’t think it won’t be as ferocious or as aggressive as what we have already witnessed.
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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