Just looking at the kind of data, the FII participation which has come back and we were looking at the open interest when it comes to just the GIFT Nifty yesterday and that is sitting at a height. It seems like the market is broadening even further, more participation coming in and that kind of gives you the conviction that the gains are here to stay pretty much.
Manish Sonthalia: After the rate cut in the US, there is an element of dollar carry trade also happening. In emerging markets, we have had some stimulus given by the Chinese government and dollar index pretty much is sitting close to 100 and it has fallen from 105, 106 to something like where we are right now. There is a case of borrowing in dollars and investing in emerging markets and you saw some very good buying by FIIs in the month of late August and I reckon that that would also be the case when we are looking into September.
Of course, there will be bouts of volatility, but every decline will be bought into, this has been the stance for a very long time now. It is only going to be remaining the same. The market has become extremely diversified to paint in general that everything in the broader market is overvalued or everything in the larger cap index are not so overvalued.
I do not think that is going to be the case, it is going to be individual stocks, it is going to be individual sectors. But my sense is that every dip will be bought into. There will be pockets of strength. There will be pockets of weakness. And we go through this and the markets are going to only meander higher as we progress into time.
But let us talk about where there is some amount of valuation comfort and that seems to be the underperforming private banking space. Of course, an Axis and ICICI Bank as well continue to hold up, but in particular about an HDFC and Kotak and you do not have to get into the individual names, but just trying to understand whether there is merit in looking at private banks because there have been many a false starts that we have seen in the past year.
Manish Sonthalia: So, as I said, there is a problem of plenty and when there is too much of funds and you are looking for valuation comfort, private sector banks, public sector banks, do offer an island of comfort in terms of valuation.
And we have to look into FY26 as opposed to FY25 as far as the private sector banks are concerned, the cost of funds have gone up. Credit cycle has remained benign for a very long time, particularly the retail side of things are starting to look at uptick in credit cycle, so you will have some elevation of slippages come through and that would translate into anywhere between 10% to 15% sort of an earnings growth.
On a price to earnings multiple, some of these private banks look very comfortable, not so much on the basis of price to book, but essentially it has to do with the fact that valuations are extremely comfortable and that is why when you have a lot of funds to deploy, this is one large area which can absorb a lot of capital and at the same time there is valuation comfort.
So, I think that is the play as far as the private sector banks is concerned. It is a large index play. But overall, I think it has remained underperformer for a very long time but currently because of valuation comfort they are getting bought into.
What about the consumption sector? In terms of earnings growth, that has been lagging for quite a few months. Do you see that picking up now?
Manish Sonthalia: So, a lot depends on, let us say, the FMCG space. It has to do with how the monsoon plays out. Overall, again, there is not too much of valuation comfort as far as FMCG names are concerned, vis-a-vis the growth that these companies are offering.
I think I would be remaining selective on consumer discretionary names. Urban consumer is doing better than the rural consumer as far as the discretionary names are concerned.
But I think if there is a good monsoon, you will also look at discretionary names in the rural sector start to do well. So, overall, consumption is a good place to be in, but one has to be very selective. It cannot be general one size fits all sort of an approach as far as the consumer name is concerned.
But overall, barring a few, FMCG is not really the place to find value vis-a-vis the growth that these companies are offering. But discretionary, yes, a lot of positives are still to unfold as far as some of these names are concerned. But particularly in the areas of the urban consumer, I think there is the maximum interest.
What is the take on power because that continues to be one space wherein we have seen stock prices rise as much as 40% to 60% this year so far. There have been fresh capex announcements now. Do you expect this move to continue?
Manish Sonthalia: Yes, absolutely. As far as the capital good space is concerned, when you have to choose between, let us say, defence, railways, and power, I think both the PSUs, private sector, you will have selective names where there is a lot of interest and it is likely to continue because some of these power-related names, particularly those in the public sector units are offering decent amount of growth and very reasonable valuations.
Some of the private sector counterparts are trading at very elevated valuations, particularly the value chain when you talk about cables, transformers, switchgears, conductors, these are offering some ridiculous valuations.
I mean, these would be overall avoid, but some of the large public sector units, particularly the transmission, the generation side of things, some of the names in the renewable space, wind, solar, they would be offering good growth and the valuations that some of these companies are trading at, I would believe that this is one space which will have some decent upsides as far as the stock prices are concerned in the medium term and they offer a decent amount of valuation comfort as well because India is short on energy security.
It requires a lot of energy comfort when it comes to achieving a 6-6.5% real GDP growth. I mean, there is humongous amount of work that needs to be done in this space. And I think the entire value chain will gain, but one has to find where there is valuation comfort. Some of the generation companies, module companies, wind power, transmission, and I reckon that even the public sector units have a good offer in terms of value.