![manish sonthaliaNEW-1200](https://img.etimg.com/thumb/msid-111625070,width-210,height-158,imgsize-26702,resizemode-75/manish-sonthalianew-1200.jpg)
The extraordinary strength in the market continues. For how long it will continue?
Manish Sonthalia: So, there seems to be some sort of a bull fatigue setting in the market. But given the liquidity position, I think that all declines or dips in the markets will be bought into. So, from that perspective, whatever tinkering is being done by regulators to curb excessive speculation in the F&O and removal of a large number of scripts to be admitted as collateral, as margin, these would all point towards strengthening the system.
And I think that is the way it should be in terms of the health of the market. But as long as the SIP flows and all these technical parameters do not impact the SIP flows, which ran at something like 21,000 crores last month, if that happens, then obviously you will have an inherent strength in the bull market that we are in.
And from that point of view, there is enough steam in the markets for the next two-three years at least and obviously, you will have ups and downs, but the next guiding factor would be your upcoming union budget.
What is the market anticipating from the budget this time?
Manish Sonthalia: So, first and foremost, realistic expectations on the real GDP growth translating into revenue growth, should be reasonable. FRBM targets and some targets to be set for FY26.
For FY25, we are working with 5.8%. I hope this glide path to lower down sharply to around 5.1% in the next one year. If that happens, plus you have impetus on balance sheet expenditure of the government to accelerate infra spending and at the same time be pragmatic on the pain that is there in the middle class and the rural folks to dole out something as consumption expenditure.
You already have a lot of food subsidies that have been given, but something on the fertiliser front or on the housing side and all of those. And for urban Indians, by and large, middle class, if there was not to be too much of tinkering in direct taxes, that would alleviate a lot of pain and some additional allowances on the personal income tax, plus rationalisation of GST on a few items which are considered prohibitive in the current scheme of things because most of them under the 28% are daily expenditure or let us personal expenditure item for the middle class.
So, those could be done away with and counterbalancing that with let us say miscellaneous capital receipts and so on. So, I would broadly look at these things, balancing the FRBM and be pragmatic both on the capital expenditure as well as the revenue expenditures.
Great to talk about India. But the grain of the truth here is that global markets are also in a fine fettle. And given that we have got elections in Europe and then you have got big election in US towards the second half of this year now, that is something which in a sense could add that extra dimension of volatility. So, how do you see the global election cycle impacting global markets, which also have been quite strong and supportive?
Manish Sonthalia: So, the global setup does not seem to go away in a hurry. You already have the verdict come out from United Kingdom, France and later in November you will have the US. The big takeaway from the developed markets would not be that much political, but really does not make too much of a difference as far as India is concerned, whether Biden comes or Trump comes, but more so on account of the rate cuts.
And now there has been increased clamour for rate cuts in the US, if that was to happen, then obviously it is going to be good for emerging market as a whole.
So, domestic factors would play a larger role I would believe and global factors, the big thing to watch out for as far as India is concerned would be the Federal Reserve cuts rather than anything significant or earth shattering.
I mean, there can be geopolitical risk, I mean nobody has a clue about that, but if we were to maintain current geopolitical status, elections by and large would be a non-event as far as India is concerned. See, volatility and risk are two different things, there can be volatility, but as long as fundamentals are okay, we should be fine.
Unlike last earning season, this time expectations from the earning season are high. FMCG has reversed, monsoons are strong, inflation is behind us. So, do you think the risk for the market in the near term is that prices are high, expectations are high, and corporate earnings may not match up?
Manish Sonthalia: Corporate earnings, we are going into the earning season with very muted earning expectations. So, broadly Nifty would be 0% to 5% sort of growth. But the margin tailwind, as we have seen in the third quarter of last year and the fourth quarter is abating. And if you were to exclude, let us say the oil sector, the oil marketing companies, Nifty would broadly project 5% to 10% sort of a growth.
So, corporate India as a whole should see anywhere between 0% and 5% because bulk of them are basically by large companies, the bulk of the profit growth, smallcaps and midcaps really do not add too much to the corporate profit growth as such and Nifty should be in the vicinity of 5% to 10% this quarter. So, we are entering the earning season with that sort of an expectation. Some of the sectors, which as usual, are likely to do much better than the others would be your, obviously, BFSI which is quite undervalued as well as the earnings would be likely be better than most of the other sectors.
You would have automobile which will be actually leading from the front. You will have a pharma sector, you will have capital goods, you will have real estate, you will have metals. These are some of the sectors which are likely to be doing much better than the overall corporate India earnings growth average.
However, today markets are mindful of valuations. I mean, markets, if you see the construct and the structure of the markets today, they have gone into a defensive mode because we have seen a sharp run-up. There seems to be some sort of bull fatigue setting in. So, it is time for those sectors which have run up too soon, too fast, time to consolidate and that is why you have seen the defensives likely come out in the open and started to move up. But having said that, some of the spaces which still have value is obviously BFSI, your PSU pack as a whole and obviously budget will have a lot to announce in that space. The metals, oil, power, these are some of the sectors and a few of them in the power sector not all of them would have some semblance of rationality as far as valuation. So, today the problem is valuations. Earnings would not be too different from what the expectations are currently that the market would be looking at.
So, any other tactical change that you see happening in the market right now in the very near term, other than a bit of a prop up in FMCG?
Manish Sonthalia: One is scouting for where is the valuation comfort because India is in a growth story, all of that is good for the medium, long term, all well known. But the spaces that you have comfort is BFSI, I mean that is one space where earnings over the last five years has been stupendous, 35%, but the market cap increase has been roughly around 18% to 19%, so there is clearly out of sync so to speak.
Other than that, most of the other sectors would be trading at more than average 10-year PE valuation. One space where there is always a divided opinion is the PSU space as well.
I would think there is value because in these sort of overheated markets you have some semblance of valuation comfort out there. Some of the beaten down sectors which have not seen that big a growth in market cap is the pharma space which has not got re-rated and obviously this is one space which is out of sync as far as the growth and the valuation outlook for the next three years is concerned.
So, other than that broadly the growth is priced in and it is not about buying high and selling higher, that comes more within the realm of speculation or trading, but buying where there is margin of safety. So, these would be some of the spaces where I as a manager would be comfortable.
You bought into stocks like Zomato. You were bullish on consumer tech and fintech. That space which was a bombed out space, let us say a year-and-a-half ago, two years ago now has regained all the lost traction with the exception of Paytm which is a special situation stock. How do you see this entire consumer tech and fintech space evolving from here now?
Manish Sonthalia: See, this whole consumer, fintech, anything to do with tech enabled is basically a network effect business where the leader takes all. So, obviously these incumbent players would have reaped the benefit of being an early mover.
All platform businesses have that leeway for them. The environment keeps on changing. Obviously, Michael Porter's five forces model, you will have competition come in once you start to make profits, there will be emulation of your own business models so on and so forth. So, one should be mindful of the competition, but otherwise the growth trajectory because you have a platform business, not so much in the fintech space, but more so in the consumer tech space, it is basically a right to win and a new player will have a tough time getting the business models in place because these are all unit economics business and it is not easy to get unit economics in consumer tech very easily.
And once you have achieved it, there is a non-linearity. So, from that point of view, I still maintain for the next five years platform businesses are going to have disproportionate benefit because it is a good story in India and if you get it right early, then you have the whole up move in front of you.
(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
Read More News on
(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price