The markets have been very volatile. In the last one-and-a-half months, we have seen a 3,000 points decline when it comes to the benchmark and in the last couple of sessions or last three sessions, we have seen nearly one-third of that being recovered. How are you managing your portfolio amidst such volatility?
Roshi Jain: What works for us is that we are long-term investors and all our stock picking is based on outlooks at least over three years, if not longer. Therefore, near-term volatility is perhaps not as much of an issue for us. It is in the nature of markets to be volatile. For anybody to expect linear movement in markets is perhaps an unrealistic expectation. But having said that, given that we are more long-term investors, near-term volatility is not as much of an issue.
Obviously, the volatility would not impact you much given the fact that you are a long-term investor, but given the 3,000 points fall that we had seen in the market, at least the benchmark, any sectors that looked attractive post that and if yes, which were those?
Roshi Jain: Like I said, near-term volatility for us is really not as much of a decision point in our long-term frameworks. You are right that there has been a 3,000-point fall, but the context also needs to be in the perspective of what we have done in the last 12, 24, 36 months. Like I said, it is in the nature of markets to be volatile and to assume linear journeys is perhaps unrealistic. From a sectoral or a stock-specific perspective, this correction gives us the opportunity to add to positions which we hold and where we think prices have become attractive again. But I would not see this as fundamentally altering anything for us in our portfolios.
Given that one factor behind the correction was the earnings disappointment, were you also concerned with the set of numbers that we have seen in the first half of the financial year? Are you building on the hopes of the second half on the positive side? We do believe that you are a long-term investor, but given this correction, which were some of the sectors that looked attractive to you and where HDFC AMC has gone ahead and increased the positions?
Roshi Jain: Let me address the earnings issue first. Given India’s macroeconomic situation, the earnings trajectory for the medium term for the economy as a whole, for corporate India as a whole, perhaps I would not use one quarter or a couple of quarters to say that anything has changed meaningfully. We still are on the track for earnings growth to stay in the double digits over the medium term and that being the context,
I would not perhaps get overly worried over a one- or two-quarter disappointment, especially given that we did see government spending come off significantly in the first two quarters, but that was because of the elections and therefore some sort of slowdown in government spending. The medium to long-term earnings trajectory for corporate India stays pretty robust and in that context, like I highlighted in the previous question as well, given that we create portfolios more for the long term, this correction is not something that has made us sort of relook our stance.
We continue to stay invested in the sectors which we like from a medium to long-term perspective and tactical opportunities like this will be used to add where we already have a positive thesis, but nothing really meaningful from a portfolio perspective that has caused us to re-evaluate anything given the correction that we have seen in the last couple of weeks.In your flexi cap fund, the auto sector is one of the top five bets. Given the recent correction in the passenger vehicle space where there was indeed an inventory issue, and the two-wheeler stocks have also corrected very much. How are you positioning yourself in the automobile sector? In the next two to three months, we are going to see many EV launches as well as rural recovery at play. The tractor demand is expected to go up. So, some bit of bullishness is building in this sector. What could do well from these levels?
Roshi Jain: I am going to change the narrative from a three-month to a three-year perspective. The auto sector in India is still fairly under-penetrated and it is a segment where there is a sort of opportunity for the market to grow and it is in that context that you should also look at some of our positions in the automotive sector. There will be seasonality around festive season, inventory build-up, inventory drawdowns, year-end discounting and so on and so forth, but if you change the period of time to extend beyond just a three- or six-month perspective, I think one thing that we have seen is that mass consumption in India which had been sort of on a slow pace over the last few years for very many reasons, we should start to see a turn in that. We perhaps are already starting to see a turn in that and I do think that the automotive sector is a very big beneficiary of a pickup in mass consumption. It is in that context of a pickup in mass consumption and huge under-penetration in the automotive sector itself in India, I think that you should look at some of our holdings. In addition, we also have a very strong auto components industry, which is globally competitive as well, and you will also find holdings in our portfolio in the auto components space, which is not just a beneficiary of Indian demand picking up, but generally competitiveness in the global space where we are seeing some softness in demand, but perhaps just cost competitiveness will also make market share gains another lever for growth for the globally exposed auto components sector.
When it comes to your top five sectoral holdings, we are seeing banks as one of them. But when it comes to banks, we have been constantly seeing an underperformance coming in in the market, be it because of earnings, because of the MFI issues that has been there in the market. But over a longer period of time, how are you seeing banks? And among banks, where does your preference lie? Is it the private banks or the PSU banks?
Roshi Jain: We do think that the growth of India has to be supported by the banking sector and therefore, we do think that banks are a good play on India’s growth story. Again, our banking exposure is an outcome of our bottom-up stock picking. We like banks which have granular asset and liability franchise where there are risk guardrails in place. So, I mean, they could be in the public sector or the private sector, I think what is important for us is the business models of those banks have to be robust and it is in that context you will find a lot of the larger banks where the portfolio is positioned towards. Valuations, of course, from a cycle-adjusted perspective also….
You were also mentioning that you are expecting the capital expenditure to pick up in the second half of this financial year, but given the fact that there have been a lot of populist measures that have been announced by the state and the central government, do not you see that there is a risk to this capital expenditure number that was projected in the budget?
Roshi Jain: Again, if one takes perhaps a little bit longer-term view on capex expenditure and also going by the history that we have seen over the last few years, it does appear that this government is focused on ensuring that capex growth in the country sustains. Also, the fact that the government has done significant heavy lifting as far as capex is concerned during the immediate post COVID years and it is sort of unrealistic to expect the government to continue to do that heavy lifting.
In fact, we have already started to see signs of public capex pickup in FY23 as well as a pickup in private capex. So, I think that from now on perhaps the heavy lifting on capex will be done by the private sector. The government will continue to stay supportive of capex, but I do think that the phase of heavy lifting perhaps from the government is behind us and now we will see more of the support coming from the private sector, with the government of course continuing its capex initiatives in addition to balancing various other objectives that it may have.