Largecaps remain attractive amid global volatility and tariff uncertainty: Sorbh Gupta
"It is a domestic oriented story. 60% of GDP is domestic, least impacted by
tariff
, and much better valuation especially on the largecaps, all these things put together are working in favour of allocations to India and that is what we are quite nicely buying from
FPI
in Indian equities and that is clearly supporting the
markets
and the resilience that you talked about," says
Sorbh Gupta
,
Bajaj Finserv
AMC.
Tell us, one of the major factors that is really contributing to this resilience in the market, we did see the two-day drawdown on the back of sentiment, but we have started moving up yet again, so that resilience has really aided by a renewed
FII
interest in Indian markets. In fact, we have been seeing almost 32,400 crores worth of buying in the last eight sessions by the FIIs. Now, given what is playing out in the US, the underperformance by US market, also the moderation in in the US dollar index and the bonds, is the FII interest in India likely to sustain and provide a cushion for the markets going ahead?
Sorbh Gupta:
Oh, absolutely, we saw $30 billion of selling. Our valuation comfort improved much better than other peer groups, emerging markets and developed markets, over the last six months. And the way whole tariff things have shaped up from a safe heaven perspective, a domestic oriented story plus valuation comfort plus least impacted by tariff, all these things put together I am sure people who moved out in a hurry from India in terms of FPI flows towards maybe US or China are clearly looking back at India. It is a domestic oriented story. 60% of GDP is domestic, least impacted by tariff, and much better valuation especially on the largecaps, all these things put together are working in favour of allocations to India and that is what we are quite nicely buying from FPI in Indian equities and that is clearly supporting the markets and the resilience that you talked about.
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But help us understand that amidst this market which are the sectors that you are overweight on and which are the sectors which are not giving you that much of a confidence and you do not have much of a positive stance there.
Sorbh Gupta:
So, very clearly, we have oriented our portfolios towards more domestic consumption. There are multiple triggers plus valuation comfort that are lined up there. This includes discretionary and staples.
So, the portfolio allocations in terms of overweight are towards domestic consumption in the next three-six months with multiple triggers like tax rebate starting to play out in people's hand from April onwards, plus a good monsoon, rural pickup, all these things put together shall support domestic consumption.
The portfolio allocation has moved towards more of domestic consumption including banks. Banks are beneficiary of domestic economy doing well. So, banks is also one of them. We are also positive on pharma, not necessarily generic US exporter but more towards crams and domestic pharma, so that is a pocket we are very positive upon.
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We are positive on insurance. We are clearly underweight it or any other export-oriented businesses which gets impacted because of US slowdown, so that is one pocket we are a little underweight over there, so that is the broad allocation, more tilted towards consumption, more of healthcare but healthcare domestic oriented or crams not US generic necessarily and underweight it. We are still looking at some triggers for growth in autos.
So, we are careful on autos, very-very selective. We are still not seeing a lot of growth, but hopefully as economy recovers, domestically things should play back on autos, but we are still an underweight on autos.
Also, talk to us about the small and the midcap space. Despite the considerable correction that we have seen, do you have valuation comfort because some of the names are still trading at a premium. So, how do you view that space because that is where really where the wealth generation happens as far as the small and the midcaps are concerned and investors would like to know that at this juncture is the smid space really still at a premium and it is a wait and watch before you actually park your funds there?
Sorbh Gupta:
Yes, absolutely. If you had asked me this question six months ago, I would clearly say that there is a lot of froth and please stay away from mid and smallcaps.
But over the last six months what we have seen is though broad based at a blanket level I can always say that still valuations are uncomfortable relative to largecaps, but clearly some pockets of comfort have started to emerge over last three months in midcaps and smallcap space also.
So, some quality names, some pockets where valuation comfort has emerged those pockets one can take a contrarian call where triggers are lined up and we believe one has to be a bit more selective, but compared to what was maybe in September, October situation is better in terms of valuation comfort in mid and smallcap, so maybe some things can be picked up from mid and smallcap space also, not a blanket trade right now from a valuation comfort, on a blanket trade perspective largecaps are still better placed, but yes, some pockets of comfort have started to emerge in mid and smallcap also for us and that is where we are looking at, but not a blanket trade mid and smallcaps,
It is not a blanket call on SMIDs, but tell us what are these pockets of comfort for you then?
Sorbh Gupta:
So, one should look at chemicals. Chemicals is a space where some triggers are lined up, valuation comfort is there, a lot of companies have completed their capex. So, we believe that is one pocket one should look at. Auto ancs is also one pocket where valuation comfort has emerged. Again, a lot of capex companies have completed, waiting for an upcycle in demand. So, people might have to wait. It can be a bit of a contrarian call, but valuation comfort has emerged, not much downside, so these two pockets clearly are emerging as very good. As I talked about crams space.
So, within crams space, there are some good high-quality midcaps and smallcaps on the pharma crams where one should look at. So, these are clearly pockets where valuation comfort has increased. We clearly see some triggers lined up over the next three, six, nine months to be invested in these companies and, of course, not to leave alone
cement
.
Cement is also one pocket we are very bullish, both largecaps and smallcap. We believe this year demand should be good, pricing power should come back in cement, so that is also one sector even in the smallcap space you can look at.
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