What is happening within pharma because it has been on a healthy streak? The last three months have been pretty strong for the entire basket, whether you attribute it to the fact that it is a defensive basket or because there has been a significant increase in their market share, in the US genetics market. Do you believe there is further legroom for growth within pharma?
Vikash Kumar Jain: The market itself is pretty expensive. But pharma for some of these bigger cap pharma names, is still less of a domestic story. The valuations are looking not so comfortable to us, so that is why we reduced our weight on pharma a few months back. I should have waited a bit longer, but clearly, valuations are not something that are giving us a lot of comfort.
You can divide the market into more India-specific trades at times and more global trades. Global trades and global companies typically have global comms, which are more relevant, like, a commodity company in India cannot be seen to be trading very differently from commodity companies elsewhere. Similarly, when you are linked to the selling, part of your business is coming from outside, and it is tough to extend multiple significantly higher. So, I am not pushing my luck on that one too much.
Is there a chance that flows could turn decisively from the global front because the setting on the table is such that the Fed has pivoted, the dollar index is down, China no one cares, the US economy in a sense at least the growth part which is the Magnificent Seven or the Famous Five, whatever you want to call them, are expensive. Do you think decisively flows could come back into India?
Vikash Kumar Jain: Decisively, if the soft landing narrative played out, the third bit, which will again come into flavour is perhaps more confidence in EMs. Now, like I was explaining right at the start, 90% of the foreign money that comes into India is non-India dedicated. If there is more confidence in EMs, these funds are likely to see inflows. One of the reasons why FIIs own much less of India as a percentage of the share of the market is because most of this money is in EM and EM as a perception was not seeing with whatever was happening in China.
People who are investing in EM funds were not feeling very comfortable. That cycle reverses. The question to us then will be when money flows into EMs that will mean flows coming into India. Typically, the best months in terms of performance have been when we have seen big FII buying, whereas there is, of course, this steady domestic buying that keeps happening. So, whenever, FIIs turn buyers in a big way are the months where we have seen big performance. So, from that perspective, that is the other part of kind of potential possibility if the whole soft landing narrative gains more confidence in currency, I think then people will start looking at investing in EMs because EMs as a basket is pretty attractively valued.
Most markets other than India and maybe Taiwan to some extent, are pretty attractively priced. So that should mean more money coming into the EM basket and that should also mean some of it flowing into India as well.Interesting businesses which of late you have liked, for example, the consumer tech, fintech business which two years ago got listed. Now, the battery guys are going public, like Ola. New and interesting SaaS companies are going public. One of them has already gone public. Is there anything interesting, that comes as a new theme, could be niche or small today but has the potential to become big?
Vikash Kumar Jain: We came out with a detailed report just a few days back on consumer tech, rather quick commerce. From being food delivery operators, some of these companies are shifting to taking a much bigger pie of the overall retail market. There is value and convenience that they offer. They may not be the best in value. The best in value would make you go and queue up and buy in supermarkets, which is not the best in convenience. But if you get to see the best mix of convenience and value, then they fit pretty much over there. Some of these names are in quick commerce and maybe there could be more to come, which could be added over the next few months and years into the market. That is one thing we like a lot and are quite interested in.
If somebody has to sell or go short on some space where asset or stock prices are bloated and have reached the ‘Humpty Dumpty’ level, a brokerage would say underperform or sell. So, would you identify pockets where valuations have reached the ‘Humpty Dumpty’ level?
Vikash Kumar Jain: This is the bit that has become very tricky about India. We have our proprietary India bull-bear index and that is at an extremely bullish level, getting close to 90% bullish, typically around the levels where we start fearing a corrective pullback
Now, when something like this happens, what we have seen is this happening without any big, massive worry or a red flag can only at times mean shallow corrections or periods of low return. So, even when we have been using it on a live basis, this is a new setup globally that we are in. India does not seem to have its red flags. But there could be reasons why when sentiment goes to one extreme, we can see a period of extended low return for some time, or maybe even a pullback like last time when it happened we had a quick 4% pullback in early August.
I think that is something which we could again, see and then maybe a gradual move. We are in a period of low returns for sure. In such periods, there is always a positive rub-off in an excited market like India. Now, when that positive rub-off goes into global sectors, you start thinking of treating global sectors with a domestic lens or an India lens, and that is a blatant mistake that one should not make.
For example, commodity producers elsewhere are also commodity producers here. They also depend on global commodity prices. One cannot suddenly start seeing them differently just because they are listed in India. Some of those things perhaps is where a lot of excitement at times kind of rubs through. At times, there are areas where multiples have gone significantly higher – 50-60x multiples. That is an unbelievable quantum of growth on a pretty significant sustainable basis that those stocks are baking in. Those things become very difficult to push. It is not easy to short this market, but those are places where you should not be pushing your luck much more, that is the minimum thing that I can say.