Structural concerns loom despite macro strength: Jigar Mistry
ADVERTISEMENT The markets are also looking good because, of late, we are just building on to that gains, believe that the worry around the Trump tariff tantrums as well as the slowdown everything is just abating away. Give us some sense what are you pencilling in for the markets and the bigger question is, is this up move sustainable? Share your thoughts.
Jigar Mistry: It is a dichotomous situation if I am being honest because see, clearly India is a macro darling in an otherwise turbulent world. But frankly earnings recovery is very elusive even as we speak. So, if I pencil in what we are looking at from a macro standpoint, then very clearly the CPI inflation is benign in India. We are around 4-4.5%, that looks fairly okay. Secondly, with the crude prices coming off and rupee appreciating, you are arguably looking at a trillion INR in saving from the entire economic standpoint that would obviously get dispersed differently. And thirdly, even the CAD, BOP is fairly stable and that gives you an impression that in an otherwise volatile world, turbulent world, India stands out. However, that is not translating fully into how the earnings are panning out.
So, if I look at Nifty 4Q earnings, they are up like 7-7.5% YoY, but it was almost entirely driven by banks and lending institutions, across the board, especially in the mid and smallcap the earning recovery is absolutely elusive which is a cause of concern for many of them.
Secondly, if you look at the retail behaviour, that is also very confounding because on one hand there is more money coming into SIPs, but on the another if you look at the SIP cancellation number, that is at a fairly high number. And when you look at the Demat account and do the analysis thereof, you find that there has been a direct selling that is going on in the retail accounts and the discontinuation in SIPs are the ones that opened in 2021, 2022. It eventually all boils down to flows and not as much fundamentals. If you look at the rupee appreciation, then that means that FII money has returned back to India since about a month or so.
ADVERTISEMENT Domestic liquidity continues to be high and sadly, a lot of that money is again going into sort of all the narrative stocks which is a little bit surprising. So, net-net I would say flows are strong, earnings have to catch up if we want to sustain at the levels that we are at.
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While you did speak about the global factors at play and also earnings, but I want to get your broader view on earnings, like about the ongoing Q4 earning season. Are there any early signs of upgrades or downgrades given how the earnings have been so far, any particular sectors that you would like to discuss and help us understand that could see upgrades going forward?
Jigar Mistry: So, this all sort of began from April to June quarter last year. Now, obviously with the onset of general elections and given the large scale of that exercise, you started seeing a generic slowdown starting from that point and we have almost completed the year with a single-digit growth on the headline indices. Now the belief system if you look at it like one view of thought is that India pretty much like we saw during COVID, in COVID we did clearly really report a FY20 drop and then in FY21 sort of relay back, very similarly one view of thought is that you should see the current situation in a similar light which is that we do not really see the slowdown in F25 and then do not really talk about the run-up in F26 and we rather look at F24 to F26 and then gauge on which sectors are doing well versus others.
ADVERTISEMENT With that standpoint, optically speaking F26 should start seeing some bit of recovery starting next quarter itself because April, May, June last year was a wash out quarter, that is one view of thought. The other view of thought is that we have actually entered a structural issue which we need to understand.
Unless you start seeing recovery in a lot sectors, it is difficult to believe on where the recovery would come from, that is point one point. Point two, there is some shift even from the policy level in India, so India did phenomenally well to curtail the fiscal deficit from 4.9% to 4.4%, but that has come as by pushing the capex out states, we analysed the past 16 states that went into elections and we have noted that their capex has slowed down to 4.5% negative. Now, centre and state capex and PSU was driving majority of the growth and that might be a little more challenging now.
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