"The outlook by most of the businesses also continue to be fairly optimistic. So, if one selects a decent set of companies, it will not be very difficult to generate a 15% to 20% earnings growth at the portfolio level for the next two years," says Sachin Shah, Emkay Investment Managers.
Let us also talk about the overall earning numbers. What sense are you getting? How would you like to rate it across market caps? And also, since we are already talking about sector churning and sector rotation, any major theme that might dominate this entire calendar year for you.
Sachin Shah: So, the earning season has been much better than what it was feared, let me put it that way, that is point number one. Point number two, even if you look at sector-wise whether it was banking, financial services, even selectively in auto and auto ancillaries, I would say even IT companies were not so bad, in fact some of the IT companies have had continue to have very large order wins. Both pharma and healthcare continue to deliver very-very good results so far.
Yes, so except for maybe some bit on the consumer, that too on the staple side, I mean discretionary consumption I would say there is a mixed bag, but non-discretionary consumption there still continues to be a little lag kind of impact.
So, the earning season is very decent. The outlook by most of the businesses also continue to be fairly optimistic. So, if one selects a decent set of companies, it will not be very difficult to generate a 15% to 20% earnings growth at the portfolio level for the next two years.
Let me also ask you about the downgrade that is coming for the US economy on the back of their rising debt levels and that came in from Moody’s. Of course, there were earlier downgrades as well from S&P and Fitch Ratings as well. How much of an impact and how concerning do you think that is going to be for some of the export-based sectors, for example, it?
Sachin Shah: Well, actually, the downgrade is at a country micro level debt, but the customers that some of our IT companies deal with, whether some of the large financial institutions, manufacturing companies, retail companies, if you see their balance sheet they are in a very-very strong situation. In fact, for the last two-three years all of them have been creating a tremendous amount of war chest in terms of their cash holdings.
So, we all are sitting on significant amount of cash piles. So, we are not worried as far as the export businesses are concerned, for the businesses that we are talking about whether it is IT services, speciality chemicals, pharmaceuticals, auto ancillaries they all are going to get significant amount of order inflows and execution. I mean, in IT services we have seen some slow down as far as the execution is concerned. Second half of this calendar year 25 we should be able to see some amount of pace coming back on the execution also.
For the purpose of diversification, what would you advise our viewers? Would you advise them to stick to India for now as far as global diversification is concerned? You are talking about markets like US which definitely should be in your portfolio for the purpose of diversification. But then, do you think it is time to right now, if you have free money, just put it in the Indian markets and do not look at international diversification at the moment?
Sachin Shah: Well, frankly at Emkay we just do listed Indian equities. So, we would always say India is the best, but I do not think we are the best judge to talk about the global allocations.
Let me also ask you about the FIIs. Let us expand a bit more on that. You said that you are looking India as an attractive market for investors, but you do have the US-China deal, at least the interim trade deal happening. So, of course, there is conjecture and there is expectation that there will be stability on that front, especially because of the fact the United States actually cut more than China, 30% versus 10% that came in from China, does not that pose as some sort of counter to the India market? What do you think?
Sachin Shah: Well, we believe that these are very short-term headlines. The mega trend continues of the global alternate supply chains getting created across. It is a phenomena which has been happening for the last 10 years, which got even further accelerated post covid I would say and the fact that you can see some of the examples where the Apple has been talking about procuring more than 95% of their US sales from a country like India.
So, clearly, they have been planning this for a while now, even before the tariff were in place or tariff announcements were there. So, what I am trying to say is that these are mega trends which are happening where clearly both US as a government and US corporates are very clear that they want to create alternate supply chains and whichever country has the domain expertise over there will get their fair share.
Do you think Indian investors are actually maturing in terms of investment behaviour and the entire outlook of being stay put for short term or maybe the short termism is that still a challenge according to you?
Sachin Shah: Well, we have come a long way as far as the investor maturity is concerned and which is clearly reflected from the monthly SIP number continue to be very-very steady, almost $3 billion in spite of one of the sharpest volatility that we have seen in the last, I would say, seven to eight months. If you see from the highs of September 24 to March 25, we have seen sharp corrections anywhere in the range of 10% to 20% and even during this period we have seen that the SIP flows have been very-very steady.
So, investors definitely are taking a much longer-term horizon in terms of their investment planning rather than thinking of this as a very short-term income-oriented investment. They are really thinking about this as their wealth creation rather than income orientation.
Let us also talk about the overall earning numbers. What sense are you getting? How would you like to rate it across market caps? And also, since we are already talking about sector churning and sector rotation, any major theme that might dominate this entire calendar year for you.
Sachin Shah: So, the earning season has been much better than what it was feared, let me put it that way, that is point number one. Point number two, even if you look at sector-wise whether it was banking, financial services, even selectively in auto and auto ancillaries, I would say even IT companies were not so bad, in fact some of the IT companies have had continue to have very large order wins. Both pharma and healthcare continue to deliver very-very good results so far.
Yes, so except for maybe some bit on the consumer, that too on the staple side, I mean discretionary consumption I would say there is a mixed bag, but non-discretionary consumption there still continues to be a little lag kind of impact.
So, the earning season is very decent. The outlook by most of the businesses also continue to be fairly optimistic. So, if one selects a decent set of companies, it will not be very difficult to generate a 15% to 20% earnings growth at the portfolio level for the next two years.
Let me also ask you about the downgrade that is coming for the US economy on the back of their rising debt levels and that came in from Moody’s. Of course, there were earlier downgrades as well from S&P and Fitch Ratings as well. How much of an impact and how concerning do you think that is going to be for some of the export-based sectors, for example, it?
Sachin Shah: Well, actually, the downgrade is at a country micro level debt, but the customers that some of our IT companies deal with, whether some of the large financial institutions, manufacturing companies, retail companies, if you see their balance sheet they are in a very-very strong situation. In fact, for the last two-three years all of them have been creating a tremendous amount of war chest in terms of their cash holdings.
So, we all are sitting on significant amount of cash piles. So, we are not worried as far as the export businesses are concerned, for the businesses that we are talking about whether it is IT services, speciality chemicals, pharmaceuticals, auto ancillaries they all are going to get significant amount of order inflows and execution. I mean, in IT services we have seen some slow down as far as the execution is concerned. Second half of this calendar year 25 we should be able to see some amount of pace coming back on the execution also.
For the purpose of diversification, what would you advise our viewers? Would you advise them to stick to India for now as far as global diversification is concerned? You are talking about markets like US which definitely should be in your portfolio for the purpose of diversification. But then, do you think it is time to right now, if you have free money, just put it in the Indian markets and do not look at international diversification at the moment?
Sachin Shah: Well, frankly at Emkay we just do listed Indian equities. So, we would always say India is the best, but I do not think we are the best judge to talk about the global allocations.
Let me also ask you about the FIIs. Let us expand a bit more on that. You said that you are looking India as an attractive market for investors, but you do have the US-China deal, at least the interim trade deal happening. So, of course, there is conjecture and there is expectation that there will be stability on that front, especially because of the fact the United States actually cut more than China, 30% versus 10% that came in from China, does not that pose as some sort of counter to the India market? What do you think?
Sachin Shah: Well, we believe that these are very short-term headlines. The mega trend continues of the global alternate supply chains getting created across. It is a phenomena which has been happening for the last 10 years, which got even further accelerated post covid I would say and the fact that you can see some of the examples where the Apple has been talking about procuring more than 95% of their US sales from a country like India.
So, clearly, they have been planning this for a while now, even before the tariff were in place or tariff announcements were there. So, what I am trying to say is that these are mega trends which are happening where clearly both US as a government and US corporates are very clear that they want to create alternate supply chains and whichever country has the domain expertise over there will get their fair share.
Do you think Indian investors are actually maturing in terms of investment behaviour and the entire outlook of being stay put for short term or maybe the short termism is that still a challenge according to you?
Sachin Shah: Well, we have come a long way as far as the investor maturity is concerned and which is clearly reflected from the monthly SIP number continue to be very-very steady, almost $3 billion in spite of one of the sharpest volatility that we have seen in the last, I would say, seven to eight months. If you see from the highs of September 24 to March 25, we have seen sharp corrections anywhere in the range of 10% to 20% and even during this period we have seen that the SIP flows have been very-very steady.
So, investors definitely are taking a much longer-term horizon in terms of their investment planning rather than thinking of this as a very short-term income-oriented investment. They are really thinking about this as their wealth creation rather than income orientation.
