Looking at the pull and the push of the market, what do you make of the current market condition? Are we in for stable days or volatile days?
Gautam Trivedi: We are still in for volatile days. Let us not forget, it is great that President Trump is back in the White House, seems to be a lot of positivity around that. But the reality is that we still have two-and-a-half months to go before swearing in on Jan 20th and it is not as if he is going to do something major the very next day. So, realistically, we are not going to expect any major announcements between now and the next three to three-and-a-half months from the new administration. So, we have a period of volatility that is going to still extend into January end and the China factor, again, story floating in the markets is a big announcement today from the Chinese government. So, if that were to come through, will foreigners still continue to put money into China and as a result sell India? So, the bigger question really is how much more foreign selling is left and what is India’s ability to absorb that foreign selling.
What is the way to understand that how much more foreign selling is left? Foreign selling was a function of money moving into China, it was a function of rich valuations. Both those factors are now getting addressed. So, then why are they still selling?
Gautam Trivedi: Let us understand one thing, the total amount of foreign holding as of the 26th of September, which is when the selling actually began was about a trillion dollars. They have sold since then roughly about 12.5 to 13 billion, that is only 1.2-1.3% of their total holding. It is a very tiny amount in the big scheme of things. So, realistically, taking that much money off the table is really not a big deal. Question is, if they were to take that figure of 1.3%, 1.4% to 2.5% or 3% of their total holdings, then I think we have a situation where the market could trend down further.
Should we start preparing portfolios with the assumption that this raft of selling will only intensify?
Gautam Trivedi: No, I am not suggesting that under any circumstances. I am not saying they will sell more because they have sold as much as they have over the past three-and-a-half to four weeks. But the reality is that we are still the most expensive market, we have been.
There was no real significant alternative within the EM space to India until China happened five-six weeks ago. So, like I said, a lot is going to depend on what the Chinese government announces today and over the next few days in terms of policy initiatives to boost and stimulate their economy. So, if something concrete does come out, which is what everyone has been waiting for, then we have a near-term issue with respect to foreign selling continuing into the Indian market.
Given that you have flagged off that the earnings have been rather disappointing, confirming the slowdown in consumption. Do you believe that now the worst has already been baked in or priced in or that still earnings is likely to suffer on account of the consumption slowdown going down the line?
Gautam Trivedi: It is a very good question because we have been tracking the earnings over the past three fiscal years and I was doing this math only yesterday, I mean, frankly, preparing for this interview and what I found is that over the past three years and if I look at point to point, second quarter FY22 to second quarter FY25, i.e., the results that have been declared as of last Friday, so this is a week old, the sales growth over that three-year period has fallen from 20, growth this is, from 25.7% to 7.6%. The EBITDA growth has fallen from 12.9% to 1%. And this is the universe of the BSE 500 stocks.
And the net profit growth has fallen from 38.6% to a negative 5.3%. Of course, metals have been partly to blame for that negativity so far. But the point I am trying to make is there is a consumption-led slowdown in the country.
We saw that with auto numbers, except for the month of October. Now, I had a chat with some of the auto retailers and dealers and they said, we expect this positivity of October to continue into November and December. But historically, do remember that November or the month right after Diwali has been a very-very weak month. It has, in fact, been the weakest month of the entire fiscal year.
But having said that, we are starting to see some green shoots of urban consumption return. I have spoken to a bunch of retailers as well and they are starting to see great footfalls and sales over the longer weekends.
So, I hope and I am optimistic that this trend continues. And also, let us not forget the big story about the wedding season. 4.8 million weddings over the next two months, the highest number of auspicious wedding dates in a decade. So, hopefully, that should unleash as the CAIT is estimating six lakh crores of spending. So, again, big booster for the economy.
Why is Reliance underperforming?
Gautam Trivedi: I do not really have a strong comment on it. It still remains a great company, great execution and phenomenal management. It is basically a step. All I want to say is that we have seen the stock move in sort of steps wherein you have a high capex period and then when the earnings start coming through and the capex period comes to an end, you see the stock move up and then again, the next phase of capex comes through. So, if you look at, in general, the ethos of the company, which is bringing any product that they get into to a price point where the TAM explodes, I mean, whether it is telecom, whether it was polyester in the 80s and 90s, I think that execution still remains phenomenal. The question really is with the new businesses they have got into, the market is in a bit of wait and watch, especially with what they will do with green hydrogen and solar. I think they will do a great job, but again, proof of the pudding is in the eating.
Everybody is waiting for banks. Every time you shake anybody and say what is looking good, banks. Even if you do not shake anybody, they say banks. And before you ask what is your market view, buy banks. Yet banks do not go up.
Gautam Trivedi: Frankly, you raise a very valid point with respect to banks. My view is that, you have seen the NBFCs eat into a lot of their business, one. Two, the equity markets have become until recently, at least now deposits have started coming back, but the equity markets ended up becoming a real competitor to the deposit taking side of the banks. So, you had some of those challenges and let us not forget every second promoter that I meet, their goal in life is to reduce their debt or to go to net debt zero. So, that has become the mantra of corporate India. So, we do not see that much private sector capex actually happening even now. You take out the top 10 groups of India, the Reliances, the Adanis, JSW, and some of the cement companies which are obviously doing big capex, but there is not a whole lot of capex going on. So, on the borrowing side, we are not seeing that much pickup. So, then it is down to retail and retail, of course, has, as we just discussed earlier on the show, has had its challenges. So, the RBI has come down heavily on unsecured loans. So, there are significant challenges. We have a longer-term view on the Indian economy and the Indian banking space. I would buy some of these private sector banks.
I wanted to also understand what the outlook is on some of those very priced PSU names. At one point, defence, railways, not so long ago, were really the darlings of the market. How have you looked at the trajectory and given the government policies, initiatives, what is your outlook on the entire cluster of stocks?
Gautam Trivedi: Yes, that is a good question, because frankly the whole B2G space was booming over the past three years and I still think the government remains the biggest spender in the economy and as I said, private sector capex has not really truly taken off.
But I think the correction was long overdue and the wider correction in the market as well, let me just talk about that for a minute. When the market was going up, nobody was complaining and when the market started to finally correct and we have only had a 7.5% rupee correction in the Nifty 50 since the 26th of September, people are starting to talk about doomsday scenarios.
So, it is a little silly on that part. But back specifically to your question on PSUs, I still think PSUs will do well. There has been a correction in a lot of them. In fact, we were running a screen earlier this week on 1200 stocks that we usually track, again, sorted by market cap and we found that 770 stocks are down 20% or more from their respective 52-week highs. 400 stocks are down 30% or more from their respective 52-week highs. And no surprise, PSUs make up for a lot of those in both these buckets. So, if they correct more, selectively a lot of these names could be back in buy territory.