You have a set 24,000 Nifty target for the full year. Do you think there is a case to revise it upwards, given the way markets are taking shape, now we are 700- 800 points away from that level.
We need to look forward to the next big critical event which is budget and I believe that that will set the tone for what India needs to do for the next 5-10 years and I believe that you are likely to see a reasonable level of indirect reforms.
Please appreciate that we have very successfully enacted the direct reforms and I believe that it is time for us to try and now take the revenue-neutral rate of GST down and set that vicious circle of lower prices and higher growth rate and therefore still lower prices. And when you start incorporating those incremental data points, I am assuming that you probably have more upsides in terms of actual targets on the Nifty.
So, yes, policy continuity is there. But if I had to ask you what is the best tactical trade right now given the context, what comes to mind?
I think both on a tactical basis and a structural basis I would like to believe that you need to be invested in the markets. I am not a great believer of trying to time the markets. Please keep in mind that if you look at India and Indian markets on a three-year basis, Indian markets had never delivered a negative return ever and this is despite GFC crisis, this is despite the Fed take. So that is the inherent strength of Indian economy.
You are growing at about 7-8%, your NIMs are compounding at about 13-14% right now. You are above the trend in terms of earnings growth rate. On a three-year perspective, on a two-year perspective, I will be very surprised if the Indian equity asset class probably remains the best investment opportunity.
Talk to us about how do you marry this entire hypothesis with valuations because specifically some areas of the PSUs have really run up very sharply. Are you of the view that valuation has to be looked at in a different lens now in terms of what lies ahead for some of these pockets?
I think usually when we say that you want to look at it from a different lens, it is a bit of a dangerous territory and I am completely on board with you that there are sectors where there are frothy valuations and stuff like that. But, a lot of the stuff that you do is lot many hindsight calculation. So the fundamental rule in equity market is if you bought longevity of a business model and if the markets can perceive earnings growth for a longer period of time, you will see that bump up in valuation which means that for new investors the required rate of return has to be lower. To me, one way to get away from this is to try and have a very diversified portfolio and I think India offers that opportunity. The way to put it across is that if you actually look at the last decade and I am talking about 2010 to roughly 2021, a concentrated approach to portfolio worked very well because very few sectors were driving earnings. Now, when you look at the Indian economy, when you look at the breadth, the tail of the companies and the breadth of the earnings distribution as well, I believe that you need to create a long tail of companies so that reduces the risk.
At the same point of time, it allows you to rebalance the portfolio depending on the stocks go up or down. But it is not easy to make money at the end of the day. So, just because the things are good and you want it cheaper, life is not that easy.
But then where would you recommend to invest incrementally? People who have to deploy right now, yes, having a diversified portfolio is good, but which sectors to go towards and where to book profit out of?
I believe that this is largely what has happened in the last 10 years. So, markets continuously rewarded a particular set of companies and particular set of ideologies which is largely high ROCE, high ROE, consumer-facing businesses and which is where the capital eventually went into.
And the fact that your infrastructure was largely ignored. Almost everyone in the world is today short energy. So, someone has to set up utilities, someone will have to set up transformers. So, the prices have to be higher to incentivize those kinds of investments and that is what is happening.
So, I believe that when you look at the energy transition, it is a big investment opportunity. And when you look at electrification, I believe that a large part of the Modi 3 agenda would be to try and ensure that we do not lose out on this the ecosystem supply chain for electrification in the country and we will see more policy moves.
They already talked about allowing the cars to be imported at lower duties and stuff like that. EPC companies, real estate, PLI templates. I briefly touched upon the fact that you will have indirect reforms, which means that a lot of the consumption stocks will benefit as well.