The Indian markets have been very resilient for the past one year despite all the negative macros which indicates that one has to be little nuanced in their views about what inflation might mean in the US and its context in India, said Ravi Dharamshi, Chief Investment Officer at Value Quest Investment Advisors in an exclusive interview with CNBC-TV18.
The kind of interest rate hikes seen in the US might not happen in India, he added. This is the main reason that the kind of outflows we have seen from the FIIs have been very well absorbed by the Indian market.
It is a known fact that FII outflows have been one of the highest in the recent past and outflows of $35 billion in a span of 14 months is the highest ever outflows. It is also the highest in terms of percentage holding of FII and highest in terms of percent of the market cap, yet the market has been resilient because the internals of the Indian economy and the Indian markets have strengthened quite a bit, he said.
“Also India is at a stage of a cycle in the economy where we are just about picking up while the US is at a stage where their corporate profit to GDP is actually coming off from an all-time high, so there is a more care of recession in US and there's more care of the profit collapsing in US as compared to india where the profits actually are just scraping off the bottom and interest rates and inflation are not such a big worry”. India still remains one of the few bright spots in the world and Indian markets also remain bullish.
Talking about the new-age businesses which recently listed at tremendous valuations but have since fallen quite steeply, Ravi very strongly believe that there is a lot of wealth going to be created over the next five seven years from these new-age business models but the key challenge that remains from a one to two-year point of view is to figure out which of these new-age businesses will survive on its own and won't need the external funding from the market or from any other sources. Those are the business models to back and bet on but if there is no path to profitability or if there is no plan on how to fund the growth going forward then that is something that needs to be avoided.
He suggests that, one way to assess these companies would be that how much capital has been raised by the business and based on that capital how much top line have they generated. Even though these companies are not making bottom line profits at this point of time but it is important to assess the size of the business that they have managed to build and a company where the factor of business built is 2x/3x of the capital spend then that is a company to focus upon.
Ravi also is very bullish on the real estate cycle because it's been almost four to five quarters since the incentives rolled out by the state & central governments at the time of pandemic, went away and yet the momentum is sustaining. This shows that there was always a pent up demand and if there is a good product available in the market, there is always a demand for it. “Today I can say that whatever real estate demand is out there, it's purely consumption based and it is no not speculative at all, which tells us that Indian economy is buoyant”.
He continues to play the real estate theme through developers as well as through financing companies. “Within financing, housing finance is actually a very commoditized space, so making money over there is a big challenge and even banks are present in a big way, and I believe, affordable housing segment is the only place in the entire chain where the spreads are high and that is the only place where you can hope to make ROA (return on assets) of more than two percent and ROE (return on equity) of more than 15 – 18 percent”.
Energy transition is another theme that Ravi believes is going to be there for the next 15-20 years. There is a lot of push being given by the government not only locally but even internationally, to the clean energy and other renewable technologies. Even though, there are not too many plays available but over the next one-two years, lot of companies which are not yet in the listed space will get listed. “So it remains a space where I believe the opportunity size is so large and humongous that one needs to keep their eyes open for opportunity over here”.
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