"In two-wheelers, the entry-level segment category is facing some challenges. In addition, the weak monsoon forecast will also weigh on rural sentiments," Prateek Pant, Chief Business Officer at WhiteOak Capital Asset Management told Moneycontrol in an interview.
He believes the overall demand outlook for passenger vehicles is stable, although, on a high base, the YoY growth could moderate going forward. The trend of market share shift towards larger cars is going to continue, he says.
From a bottom-up perspective, Prateek, who has over 25 years of experience in banking and financial services in India and the Middle East, believes that the trend of well-run private sector banks with strong execution capabilities gaining market share from government run banks is likely to continue.
The banking sector has been posting very strong quarterly results with improving margins, strong credit growth, and benign asset quality, he says. Edited excerpts:
The Indian equity market is facing high volatility, what should investors do? Should they continue investing in SIPs?
Our fundamental, long-held belief has been that the direction of equity markets is impossible to predict in the short term, hardly any different than a coin flip which has a 50-50 chance of landing heads or tails. Hence, taking entry/exit calls or cash calls to time the market and avoid market corrections is a rather futile exercise. Thus, from a prudent risk management perspective, it is crucial to stay fully invested at all times with a bottom-up approach to investing in great businesses at attractive valuations.
Volatility is a permanent feature of the markets. We view macro as a source of risk, from which we try to shield the portfolio’s relative performance rather than seek any opportunity to generate alpha. Hence investors should continue with their SIPs as part of their longer-term financial goals.
What asset allocation strategy should investors follow in the current market?
Over the last few years, it has been amply demonstrated that actual market returns during and following major macro developments prove widely off the mark compared to what could have “logically” been expected even with perfect prior knowledge of those macro events. Thus, as far as equities are concerned, top-down calls are fraught with risk without adding to returns in our view.
However, at the headline level, whether an allocation is to be made to equities, debt, real estate, or gold should ideally be a function of the investor’s risk profile in consultation with her financial advisor.
Do you think investors with medium-term view should start adding equity exposure in current volatility?
Seasoned investors with longer time horizons have viewed volatility as an opportunity to increase exposure to risk assets. It has also been the case that over long periods, equities have generated the highest returns across all asset classes.
Having said the same, investors should rebalance their portfolios regularly and, in consultation with their financial advisors, decide the right asset allocation to align with their risk appetite.
Which is a better bet - PSU or private banks - and why? Also, do you expect a significant contraction in NIMs?
From a bottom-up perspective, we believe that the trend of well-run private sector banks with strong execution capabilities gaining market share from government run banks is likely to continue.
The banking sector has been posting very strong quarterly results with improving margins, strong credit growth, and benign asset quality. As far as NIMs are concerned, if we consider a full-year average for FY24 versus FY23 – we expect NIMs to remain broadly stable to marginally higher, which means the FY24 NII growth will be strong on a full-year basis. Of course, any slowdown in the economy will be a key risk.
Do you think every major dip should be bought in new age stocks now? Do you expect run up to continue in new age stocks in near term?
As with evaluating any other company, the basic valuation principle does not change; the value of any business is the present value of future cash flows. While we wouldn’t like to comment on specific names, dominant category leaders in scalable segments with healthy unit economics should do well.
In general, though, there can be a large value-creation opportunity in disruptive, emerging business models. What matters is the long-term cash flow generation potential, and given the heterogeneous nature of business models, there can be large winners and losers. That is why, as with any other market segment, assessing management’s execution capabilities is key.
Will the 2-wheeler industry continue to struggle for coming quarters? What is your take on other segments?
In two-wheelers, the entry-level segment category is facing some challenges. In addition, the weak monsoon forecast will also weigh on rural sentiments. However, the premium segment category will likely perform relatively well owing to a more affluent customer base (price inelasticity) and easing the semi-conductor situation.
The overall demand outlook for passenger vehicles is stable, although, on a high base, the YoY growth could moderate going forward. The trend of market share shift towards larger cars is going to continue.
Do you see a possibility of market hitting record highs in rest of calendar year and end the year with double-digit gains?
We have always believed that in the very near term the market is impossible to predict. It is only in hindsight that we will know whether we will hit all-time highs or not. Interestingly, we have seen many such lifetime highs over the last two decades and will continue to see many such all-time highs over the next two decades as well.
Over the long term, markets worldwide have tended to deliver returns that are more or less in line with nominal GDP growth rate plus dividend yield. India’s nominal GDP growth rate is expected to be low double digits going forward and similar would be our expectation for the market return in rupee terms.
In this context, I would like to state that we are a very bottom-up stock selection driven team. Our investment philosophy is such that we consciously avoid market timing or sector rotation or other such top-down bets. We stay fully invested with a bottom-up approach of investing in great businesses at attractive valuations, and always maintain a balanced portfolio construction to hedge against macro risks.
Is there any possibility of inflation rising again in second half of this calendar year, though the RBI expects it at 5.4 percent in the given period?
In the near term, upside risks to inflation will be dependent on the food inflation trajectory. There is a concern over El Nino, but we have seen that over successive years, government intervention has resulted in fewer spikes in prices compared to the past.
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