ETMarkets Smart Talk: As India moves from a $3 trillion economy to $8 trillion by FY30, we focus portfolio on ‘Yuva Bharat theme’: Rikesh Parikh

“As a house, our portfolio construct is focused around the ‘Yuva Bharat theme’. During such a high growth phase, we see a substantial rise in discretionary spending which in turn fuels growth, says Rikesh Parikh, Principal Officer – Rockstud Capital.

In an interview with ETMarkets, Parikh said: “Based on various international agencies and research reports India economy is currently at an inflection point with nominal GDP expected to rise from current ~$3 tln to $8 tln by FY30 as has been seen in other countries like US and China” Edited excerpts:

US Fed raised rates by another 25 bps but signalled a pause – will that support growth for the global economy. What is RBI likely to do?
While the US Fed raised rates by 25bps again on the expected line, it hinted at the end of the hiking cycle. Although macro data are still not comforting, the cooling of rates by the Fed should be supportive for reviving global growth.

RBI had pre-empted and changed its stance to pause in its April meeting, now all focus is on the inflation trajectory. Historically, it has been seen it takes 6 to 9 months post pause for a shift in stance towards lowering interest rates.

The recent weakness in crude price is supportive while the ensuing monsoon would have a bearing on food inflation. Both these factors would be decisive from the RBI perspective to review the inflation trajectory.

India's 10-yr GSEC yield has rallied to a 13-month high from a high of around 7.65% it dipped near to 7.0% in May, market participants are factoring in a rate cut late 3QFY24 or early 4QFY24.

How should investors play India equity markets in 2023?
After a disappointing 1st Quarter of CY23, markets have bounced smartly in April on the back of RBI's change in stance to pause and rate cut expectation from the Fed, inline earning season with commentary around cooling of raw material inflation and reversal of FII flows.

Going forward, near-term monsoon, earnings, and flows would drive the market, however, we are in an election year with the Lok Sabha election due in May 2024, the market tends to be volatile expecting a range-bound consolidation in the run-up.

FIIs are all gung-ho about India but do you also see a similar kind of positioning? If not, what could be the reason?
FII flows have turned positive in March and April, however, trends need to be seen. The reversal in flow partly could be due to risk in anticipation of a Fed rate cut resulting in inflows into emerging markets.

What do you make of the crisis in Go First and will that impact the aviation sector? What is the impact you see on lenders?
Go First voluntary insolvency won’t have a major impact, as the overall market share was single digit and half of their fleet not being operational due to engine trouble. In the short-term, the month of May being a peak vacation season abrupt disruption would lead to a price rise in certain sectors, for the longer-term we do not see a major impact as scheduled deliveries by other airlines should be able to bridge the gap.

Financial lenders would be impacted based on news articles; it is restricted largely to 2 – 3 PSU banks & 1 MNC bank should not have a major fallout.

Gold, Silver trading near record highs – what is fuelling the optimism? What should investors do?
Both Gold and silver are trading near their all-time highs, recent weakness in US dollar and looming economic slowdown in the US are factors providing support for both these commodities.

While we don’t have specific views on this commodity but from an investment perspective, we see investors should have allocation in their portfolio as a part of asset allocation.

What do you make of the De-dollarization trend? How will that impact the economy, currency as well as stock markets?
De-dollarization trends are gaining momentum as countries seek to reduce their exposure to the risks and fluctuations associated with the U.S. dollar.

While over the period dollar share in global trade settlement has reduced as a percentage, it still retains a giant share of around 50% of trade.

One of the probable reasons for de-dollarisation has been the weaponization of currency, the dominance that the US can inflict on other countries through sanctions and freezing of funds.

Along with this ever-growing US debt has seen many central banks and economists break away from the US dollar to de risk and diversify their overseas holdings.

While we are still far away from any other currency gaining prominence in international trade, quite a few countries have started settling their trade in bilateral currency with their trading partner.

From a stock market perspective investment flows continue to be dollar dependent, based on the US perceived economic activity risk on and risk off flows keep gathering pace between developed and emerging markets.

Any interesting results which caught your eye in the March quarter?
While 4QFY23 results reported till now are by far in line with the street estimate. From the perspective of the sector BFSI and Auto led aggregate earning growth, and Metals has dragged earnings largely due to Tata Steel.

One of our preferred sector consumption space management commentaries indicates overall sector volume growth has been flat, largely due to rural growth still elusive however some green shoots are visible towards the end of the quarter.

Within the Consumption space, Varun Beverages ltd (VBL) has been an outlier; it reported 25% yoy volume growth and its management has highlighted that rural grew ahead of urban.

A few input costs have moderated from their peaks; while they still remain at elevated levels but within manageable levels. VBL management highlighted that gross margin would further improve on a sequential basis.

Any changes which you have made to your model portfolio?
No major changes in our model portfolio, as a house our portfolio construct is focused around the ‘Yuva Bharat theme’.

Based on various international agencies and research reports India's economy is currently at an inflection point with nominal GDP expected to rise from the current ~$3 tln to $8 tln by FY30 as has been seen in other countries like US and China.

During such a high growth phase, we see a substantial rise in discretionary spending which in turn fuels growth.

Which sectors are you betting on in FY24 and which sectors are you reducing your weight?
Sectorally based on our theme we are focusing on BFSI, IT – Digital space, Consumption, Domestic Healthcare, Logistics and Auto- Auto Ancillary.

Asset Management and Wealth Management space within BFSI space has seen increased regulatory compliance, distributable fees being regulated, and increasing costs expect this space to face headwinds.

2 Wheelers within Auto Sector has seen subdued growth along with increased competition form new age EV 2 Wheeler companies impacting listed players.

Also traditional 2 Wheeler export markets like Africa and South Asia had been impacted due to inflation, currency fluctuation and local political environment.

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