India stands out globally with a better return profile, established transparent market structure, better earnings profile and governance architecture, says Jiten Doshi, co-founder & chief investment officer of Enam Asset Management Company. With healthy macros, range-bound oil prices, robust fiscal balance sheet and moderating inflation, the outlook for the market remains positive, he tells Ashley Coutinho in an interview. Excerpts:
What is your outlook for Indian equities for FY24?
India has shown resilience in the past a few years amid headwinds such as Covid, geopolitical tensions and a surge in oil prices. Corporates have come out stronger, the fiscal position is better and economic indicators are stable to positive. Earnings are set to improve. India stands out globally with a better return profile, established transparent market structure, better earnings profile and a better governance architecture. With healthy macros, rangebound oil prices, robust fiscal balance sheet and moderating inflation, the outlook for the market is quite positive. This makes earnings growth a key driver of the performance here on.
What is the outlook for FPI flows going forward?
FPI flows are slaves to relative opportunities. India presents a rare blend of growth and sustainability in the world seeking newer options. The investment world is seeking a viable alternative for EM flows. India stands to thus benefit from these higher incremental flows along with being a natural destination for incremental monies that are either moving away or keen to avoid markets like China.
Are we at the end of the global interest rate tightening cycle?
The US Federal Reserve has taken an interim pause to absorb the effects of a sudden interest rate shock to the economic system, something which we feel is transient. The RBI has navigated this environment very well with smooth handling of the interest rate cycle and currency. Mixed messages from US Federal Reserve members keep the market guessing around a pause vs hike. However, the expectation of any cut could get pushed even further. Even for the Eurozone and the UK, any take on pivot is challenging. For now, it’s a pause and not a pivot. We feel we are about 12-15 months away from that situation.
Are there risks of global contagion owing to the US banking crisis?
An US banking crisis, including a recession, will have its effects on the global financial system. Its impact on individual economies will be different in terms of amplitude and duration. Further confluence of economy and capital markets have created enough buffers and responsive systems to soften impacts of such events. India, with its evolved market structure, prudent policy regime and a proactive institutional framework is better equipped to navigate the volatility.
What are the trends to watch out for HNIs this year?
HNIs are discerning investors. The current interest rate environment suggests near peaking out of interest rates. The inflation and interest rate differential between India and developed nations is at its five-decade low. The time to invest in business is now. We prefer discretionary consumption, capex recovery, home improvement and infrastructure as opportunity segments.
A majority of PMS schemes have underperformed the benchmark Nifty in FY23. How have your schemes fared?
PMS is distinctly differentiated from other investment instruments in terms of catering to the investment needs of discerning, informed and higher risk appetite investors. Our flagship strategy, Enam India Core Equity Portfolio, has delivered a 25.7% return with an alpha of 12.8% over the benchmark S&P BSE500 TRI over the last one-year period ended May 31, 2023. The same strategy has delivered a 20% CAGR return with an annualised alpha of 3.6% since its inception in 2001.
What is your take on earnings growth for India Inc for the rest of CY23?
Amid a challenging global macro backdrop, India Inc’s profitability remained healthy. The frontline benchmark (Nifty) companies reported revenue growth of 12% YoY with a net profit growth of about 18%. The earnings beat was marginal at 8-10 bps. The margins witnessed expansion on the back of lower input costs. In 2023, the corporate profit to GDP ratio for the Nifty-500 universe and listed India Inc contracted marginally to 4.1% and 4.3%. Earnings though remain lopsided with BFSI driving almost the entire incremental earnings in FY23. Most of the corporates have withered a three-year storm of multiple headwinds on the pandemic and are set to participate in the first near normal year with a better operative and capital structure. Rural India, which was a laggard in the past a few quarters, is now coming back. In the short term, aspects like El-Nino and its impact on the monsoon could have a marginal play.
Could you talk about a few sectors that you find favorable right now?
We feel there are multiple megatrends like aspirational consumption, digitisation, premiumisation, financialisation, capex recovery, manufacturing renaissance and exports (on the back of China+1/Europe+1). We remain constructive on both IT and Pharma despite their dependence on global growth. We remain positive on opportunities in the space of infrastructure, capex recovery, aspirational consumption, home improvement and the BFSI space. We are positive about banking with parameters like better growth backed by better margins, improved asset quality and robust capital adequacy. We are more positive on private sector banks given their franchise value and digital strategy of growth.