What is the sense that you are getting when it comes to the entire BFSI sector?
Atul Suri: Yes, I find that what the banks are losing out is that the whole NBFCs and BFSI sectors is gaining because banks were dominating a lot many a places, not only just the lending space but even the AMC and broking and insurance, etc, etc. But what has emerged is a very strong tech driven NBFCs or the BFSI plays and what they are doing is taking away the chunk, so that is why you find that private sector banks as a sector or theme we have been underweight for more than two-and-a-half, three years.
But the flip side is that the benefits are coming to these other plays. So, you look at AMC stocks, you look at broking stocks, you look at insurance stocks right now, you see the kind of response that Bajaj IPO has kind of garnished.
So, I feel that there is tremendous amount of interest outside the banking space and that is again very important because the market is broadening, the sectors are broadening, the themes that are playing out a lot more and this is very important because this makes the longer-term trend much more solid and robust.
And I recall chatting with you about this I think in June as well when you made the point when the Nifty Bank gave sort of a false start that you just do not see that move coming in for banks at all. So, do you think with this entire shift which is happening within sectors, where the index is going to stay put, the Nifty Bank will continue to underperform?
Atul Suri: See, every sector will have its day in the sun, but at the moment honestly we are not seeing early signs of that. Just as we are talking about pharma and IT, probably we were not talking about them six months ago. So, the themes or the trends will keep changing and that is the name of the game, that is our job actually as fund managers to be able to kind of navigate portfolios through these trends. But at the moment yes, the big-big challenge is in the Bank Nifty, but as I said sooner than later even that will have its time in the sun and as and when that happens we have to be quick enough to rotate into that sector. But the thing that really stands out for me at the moment are the things that I am working on, which takes up my time, is essentially the allocations to pharma, IT and FMCG and identifying stocks in that place.FMCG index has hit an all-time high, it has happened after three-four years?
Atul Suri: Remember we used to talk about them and always felt they were quality stocks. These quality stocks have not done well for two to three years and now they are getting their place back, they are getting their mojo back and rightly so because you cannot ignore these high-quality companies.
So, you will find the paint stocks, you will find the FMCG stocks. So, all these guys were actually underperforming for two, two-and-a-half, three years. And the whole rotation is happening.
What keeps me doing research are how these new themes and trends are happening. And mind you these themes and trends do not play out for one week, one month, three months, these are tend to be a two- to three-years kind of play. And after almost two to three years I am seeing a very big shift that is playing out.
Recap what we have discussed. You still feel that the leadership lies with industrials and cyclicals. Within that FMCG and defensives are catching up, so shift a little bit of allocation from industrials to FMCG and other sectors but keep that as the large overweight still that should be the heart of your portfolio or core of your portfolio.
Atul Suri: I totally agree with that because I personally think that the bigger story is still going to be playing out in industrials. They have run up hard. They need to rest because if they do not rest, then things go crazy, like you look at some of the defence stocks as to what was happening about a month or two months ago. You could not sustain. You cannot sustain that kind of move in such big companies, such big cap plays.
So, it is rightly so that they have corrected, they will rest, they will take some time till people start ignoring them and they start writing them off and when that happens, I guess then the time is there for them to make the next move.
But now do you see a sustained leadership come in for IT, FMCG, and pharma?
Atul Suri: Yes, I do think so because these tend to be very secular and thematic. As I said we have trusted them because of the last two to three years of performance. But you got to go back from 2015 to 2020 or when it was this so-called quality, especially in the year 18-19-20 you find that these also can move very fast, they also are great sectors to be in, it is just that the market has its way.
When the pendulum swings on one side and you feel it is going to go on till infinity, it again pulls the other side. So, these sectors are great sectors, with a lot of great companies and there is a lot of quality to hunt which is very-very good.
How should one look at these new-tech stocks now? I mean, they have also demonstrated exceptional strength, let us say Zomato, even Paytm, Policybazaar. There are no historical reference points here. So, how should one look at that sector?
Atul Suri: I totally agree with you that in terms of valuation plays you cannot put the same matrix for these companies because the growth in them is parabolic. For me, personally, still I feel that markets are slaves of earnings, some stocks which are going up due to earnings I think are some things that I would back and bet because I am very-very wary or scared of just a theme moves and a lot of stories come up and very often you get into them and when the thing turns you get really whacked.
So, I find that even in this digital space which I think is extremely-extremely interesting, those companies that are able to deliver and there is a certain amount of clarity, I feel are going to still make a lot of money.
A lot of people feel oh, they have moved up, they have doubled or trebled. But I feel that these are stories which are 10x stories and when profit comes I mean, I have seen that whether you have studied Apple or Amazon or Tesla globally, all these high-tech spaces you will find that when profitability kicks in that is when the joy is and most people get very limited in their abilities, but these things grow exponentially and I do think that there are some plays in India for sure.
What is it that you are making of autos because much like what is happening within various sectors and you talked about industrials versus IT, FMCG, pharma; within autos also there is another story altogether which is playing out where the two-wheelers are doing something else and the CVs and the PVs are up to a different story altogether.
Atul Suri: I agree with you that is very true, it is very visible, whole divergent trend, like what happened to telco yesterday and on the other side a lot of these two-wheelers are making new lifetime highs. So, I feel that that rural theme that I have said is also going to be playing out very strongly in this area because this sector is very dependent on rural demand and the kind of contours that emerge from there.
And as I said that one thing I am getting very bullish about is the revival in rural demand. As I said that I can see the government clearly a lot more money, as I said they have learned a lot from the election outcomes hopefully and number two is that we are going to have a record harvest.
With that as a background, I think that rural consumption will kick in and that is why you will find that there is a divergence of trend within the auto sector, whatever is more rural facing will do well, what is urban will kind of rest.
The short-term market outlook or short term what do you think will outperform when I say short term, three to six months; medium term, one year; long term, anywhere between three to five years. If you have to let us say identify one name, one asset class, one idea short term, medium term, long term, how would you fill in the blanks?
Atul Suri: First of all let us come to the index itself because right now everyone feels oh, my God, the market is going to correct, correct. Correction toh hoga yaar, that is a part of the game but my target for the Nifty is around 26,400 which is a good 6% to 7%.
So, at the moment I will not be fretting too much about allocation or taking money off the table, there is a lot of angst about that. As far as a sector, as I mentioned that we are at least going overweight pharma and that would be my sectorial pick for the coming few months. But as far as the three- to five-year story, I still feel that industrials will dominate. But in short term, there are a lot of places where there is undervaluation which needs to be catching up.
So, there are going to be a lot of opportunities. I am really not too bearish on the market.
Globally as I said, the world is in a bit of a Goldilocks scenario, worries are important, people should panic that is very important because when that does not happen, then the markets crash. So, all the worry, all the panic is good
but I would still continue to remain bullish and as I said I would bet on IT, pharma, and FMCG for the three to six month time frame.