Summary
Sahil Kapoor, Head of products, DSP Mutual fund, discusses market euphoria, India’s growth drivers, and potential investment opportunities.
The Unsettling Calm & The Transition of Market Capitalization
• Equity dilution by promoters nearing levels observed two decades ago.
• The ‘Unsettling Calm’ Stretches – For 53 consecutive months, the NIFTY 50 has not experienced a monthly decline of 5% or more, and has not had two consecutive quarters of negative returns since 2015, and not experienced a calendar year decline of 10% in the past 13 years.
• The Top 10 Stocks Are the Most Oversold vs. the Broader Market. The divergence in performance of small-cap stocks over large-cap stocks between India and US is at an extreme last seen in December 2007.
• Quality is making a Comeback. After the market fell 8.5% from its peak and rallied to new highs, the stocks leading the rally were different and came from the quality bucket, not the momentum bucket.
The Drivers of India’s Economic Growth
• India’s significant investment in infrastructure and fixed assets, largely funded by a substantial fiscal deficit, has effectively driven economic recovery. Will private sector investments catch up?
• India’s Consumption Growth Rates are Slowing. Consumption constitutes 60% of India’s economy, and its recent slowdown poses a potential risk to economic growth.
• Exports Continue to remain subdued as India Runs a Trade Deficit in Most Categories.
• India’s Fiscal Support Comes from an Unlikely Partner – tax gains from stock gains which could impact government spending as that normalises.
Investment Insights
• Several prominent gold mining companies, including Barrick Gold, Newmont, and Agnico Eagle Mines, are currently trading below their average 10-year valuations. These companies are experiencing growth in sales, EBITDA, and gross margins. With Gold prices anticipated to remain above $2,500-2,550, these companies will generate strong financial results and potentially attract significant investor interest.
• The BFSI sector which has been underperforming, trading at a lower multiple compared to the broader market despite a higher PAT growth than non BFSI companies, offers a higher margin of safety.
