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Economic Times
03-07-2025
- Business
- Economic Times
A Bala explains how dialing up risk and taking a leap of faith paid off
A Balasubramanian, MD & CEO, ABSL AMC, says with credit growth anticipated to fuel increased spending, the Indian market's high PE multiples necessitate a 'leap-of-faith' approach. Fund houses, cautiously optimistic, are dialing up risk, driven by the desire to avoid incorrect predictions rather than outright bullishness. One fund house has been successful this year by taking calculated risks. It has been a good market locally and globally. Gold, silver, Bitcoin, NAV of mutual funds, everything is at an all-time high. Where do we go from here? A Balasubramanian: It should remain positive for multiple reasons. When were you bearish last actually? A Balasubramanian: I have never been bearish. If I had been bearish, I would have never made the investment in the market. Okay, so you are bullish. Now what should one do? A Balasubramanian: The way things are shaping up with respect to international developments right from geopolitical risks to tariffs, we are seeing some kind of direction coming in, which will be more positive rather than being negative, that is one. Second, within India, the growth is gradually coming back, supported by increased government spending. There has been increased spending coming from the private sector as well. Third, the Reserve Bank of India has been fully supportive of keeping the interest rate low and they are doing everything that is possible for the financial service sector to actually improve the overall credit offtake in the marketplace as we move forward. So, if you look at the whole environment, it is helping the growth come back. Inflation largely is under control. Broadly as the spending starts coming in, we probably see the numbers for companies getting better, and therefore the earnings outlook will get better. When I look at it on a cost of capital basis, today with interest rates at where they are, the cost of capital in India is the most affordable and anybody can build a business with reasonably good predictions in terms of what kind of margin they will make in terms of ROE. So, we are in a good sweet spot. The fiscal deficit is largely under control, which again gives more room for the government in case they want to put more money in the hands of people, and that will lift the whole economy. With the recent announcement coming from the government creating first time employment, it gives some kind of income in their hands which again encourages people to seek employment and that is the way the whole momentum will get picked up. We are in the right direction and markets have already consolidated quite nicely for the last almost six to nine months and we have weathered around all the volatility that hit the world quite successfully. My own belief is India is getting a little stronger so to speak. The only risk is something, which was always there – the Chinese economy is coming back quite nicely and therefore there will always be question marks in terms of how the flows will come from overseas market to the emerging market and within that, what share will come into India. These debates and question marks will always remain, but otherwise, the domestic economy driven by domestic consumption should be the major driver. But how many of these positives are already in the price? We are just two to three odd percent away or at an index level from the all-time peak. Do you not think that this is already all baked in by the markets? A Balasubramanian: The positivity, of course, will continue. It reflects on the mutual funds, the overall participation in the equity market reflects that given the past trends that we have seen, despite all the uncertainty that came in, India behaved quite nicely from the overall market perspectives. So, that being the case, I would say, it is already priced in and to some extent is getting discounted. But still no clarity has come in terms of how the earnings will pick up. Where it stands today is, nobody wants to take a call in terms to what extent earnings will start showing an upward trend and even analyst predictions have not been very clear. Today nobody is able to gauge what the real impact will be on the interest cost saving which has been one of the lowest in the country, to what extent home loan rates will drop and therefore more demand will come. So, these predictions are not being made currently. There has been a bit of a sluggish period in auto sales. But we also need to take into account agriculture. The monsoon has been good, the rural economy continues to do very well. And the government is pushing quite a lot in terms of rural India focus and therefore all these things will actually lift the income in the hands of people. As credit starts picking up, it will increase the money in the hands of people, and therefore the spending will start coming back. This is a question of time and nobody wants to, of course, at this point of time, predict that India is still trading at 20 times, 20 times PE multiples. So, one has to take a leap-of-faith call and hope nothing goes wrong as nobody wants to go wrong. Today it is not about wanting to be bullish, it's just that nobody wants to go wrong by making wrong predictions. That is the way people must be reserving their say judgment, bullishness, and upping the earnings growth without confirmation coming from the companies themselves. But in your MF schemes, are you all in or are you still sitting on some cash? A Balasubramanian: No, cash will be about 3% to 4%. We are fully invested. In fact, as a fund house, we have been quite successful this year in terms of being bullish. I still remember my CIO equity just about eight or six months back said now the time has come to dial the risk, which is nothing but putting your leap of faith back on the table and taking a bet and that is the way we have done it as a fund house.
Time of India
03-07-2025
- Business
- Time of India
A Bala explains how dialing up risk and taking a leap of faith paid off
A Balasubramanian , MD & CEO, ABSL AMC , says with credit growth anticipated to fuel increased spending, the Indian market's high PE multiples necessitate a 'leap-of-faith' approach. Fund houses, cautiously optimistic, are dialing up risk , driven by the desire to avoid incorrect predictions rather than outright bullishness. One fund house has been successful this year by taking calculated risks. It has been a good market locally and globally. Gold, silver, Bitcoin, NAV of mutual funds, everything is at an all-time high. Where do we go from here? A Balasubramanian: It should remain positive for multiple reasons. When were you bearish last actually? A Balasubramanian: I have never been bearish. If I had been bearish, I would have never made the investment in the market. Okay, so you are bullish. Now what should one do? A Balasubramanian: The way things are shaping up with respect to international developments right from geopolitical risks to tariffs, we are seeing some kind of direction coming in, which will be more positive rather than being negative, that is one. Second, within India, the growth is gradually coming back, supported by increased government spending. There has been increased spending coming from the private sector as well. Third, the Reserve Bank of India has been fully supportive of keeping the interest rate low and they are doing everything that is possible for the financial service sector to actually improve the overall credit offtake in the marketplace as we move forward. Live Events You Might Also Like: What are the top compounding themes for the next three years? Dikshit Mittal answers So, if you look at the whole environment, it is helping the growth come back. Inflation largely is under control. Broadly as the spending starts coming in, we probably see the numbers for companies getting better, and therefore the earnings outlook will get better. When I look at it on a cost of capital basis, today with interest rates at where they are, the cost of capital in India is the most affordable and anybody can build a business with reasonably good predictions in terms of what kind of margin they will make in terms of ROE. So, we are in a good sweet spot. The fiscal deficit is largely under control, which again gives more room for the government in case they want to put more money in the hands of people, and that will lift the whole economy. With the recent announcement coming from the government creating first time employment, it gives some kind of income in their hands which again encourages people to seek employment and that is the way the whole momentum will get picked up. We are in the right direction and markets have already consolidated quite nicely for the last almost six to nine months and we have weathered around all the volatility that hit the world quite successfully. My own belief is India is getting a little stronger so to speak. The only risk is something, which was always there – the Chinese economy is coming back quite nicely and therefore there will always be question marks in terms of how the flows will come from overseas market to the emerging market and within that, what share will come into India. These debates and question marks will always remain, but otherwise, the domestic economy driven by domestic consumption should be the major driver. But how many of these positives are already in the price? We are just two to three odd percent away or at an index level from the all-time peak. Do you not think that this is already all baked in by the markets? A Balasubramanian: The positivity, of course, will continue. It reflects on the mutual funds, the overall participation in the equity market reflects that given the past trends that we have seen, despite all the uncertainty that came in, India behaved quite nicely from the overall market perspectives. So, that being the case, I would say, it is already priced in and to some extent is getting discounted. You Might Also Like: Macro's good, if micros pick up by festive season, stock and sector specific party will continue: Digant Haria But still no clarity has come in terms of how the earnings will pick up. Where it stands today is, nobody wants to take a call in terms to what extent earnings will start showing an upward trend and even analyst predictions have not been very clear. Today nobody is able to gauge what the real impact will be on the interest cost saving which has been one of the lowest in the country, to what extent home loan rates will drop and therefore more demand will come. So, these predictions are not being made currently. There has been a bit of a sluggish period in auto sales. But we also need to take into account agriculture. The monsoon has been good, the rural economy continues to do very well. And the government is pushing quite a lot in terms of rural India focus and therefore all these things will actually lift the income in the hands of people. As credit starts picking up, it will increase the money in the hands of people, and therefore the spending will start coming back. This is a question of time and nobody wants to, of course, at this point of time, predict that India is still trading at 20 times, 20 times PE multiples. So, one has to take a leap-of-faith call and hope nothing goes wrong as nobody wants to go wrong. Today it is not about wanting to be bullish, it's just that nobody wants to go wrong by making wrong predictions. That is the way people must be reserving their say judgment, bullishness, and upping the earnings growth without confirmation coming from the companies themselves. But in your MF schemes , are you all in or are you still sitting on some cash? A Balasubramanian: No, cash will be about 3% to 4%. We are fully invested. In fact, as a fund house, we have been quite successful this year in terms of being bullish. I still remember my CIO equity just about eight or six months back said now the time has come to dial the risk, which is nothing but putting your leap of faith back on the table and taking a bet and that is the way we have done it as a fund house. You Might Also Like: A lot of money raised by promoters' stake sale finding way back into secondary market: Feroze Azeez ETMarkets WhatsApp channel )
Time of India
05-06-2025
- Business
- Time of India
How will midcap and smallcaps perform vis-a-vis largecaps going ahead? Mahesh Patil explains
Mahesh Patil , CIO, ABSL AMC , says in the post-Covid period, mid and small-cap companies experienced higher earnings growth compared to large-caps, fueled by increased investment and sector re-evaluation. While earnings growth has converged and valuations have corrected, mid and small-caps still offer a better long-term growth outlook, potentially attracting renewed investment despite higher valuations and risk-reward. Though you believe that further rate cuts can be a little negative for the banking space in the short term, this is generally seen to be a positive move for discretionary spending. Within that, the auto turns favourable, the sector outlook, along with that the real estate sometimes gets a push. But this time, do you believe this particular thesis will hold true? Are the valuations comfortable for the stocks to take them up? Mahesh Patil: There are two parts to it. One is urban and the other is rural. Urban is more dependent on to some extent also on interest rates because a lot of urban consumers have got mortgages and with interest rates coming down that should support over there. So, yes, clearly urban consumption can see improvement if we see more rate cuts, whether it is the mortgage sector, whether it is the auto sector. But the rural economy is also very important and there are some tailwinds there on the consumption side. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like この中毒性RPGゲームが大流行中—今すぐ無料でプレイ! BuzzDaily Winners ゲームをプレイ Undo Inflation has been trending down, so the real wages are now looking much better over there. Monsoons have been good. This year the crop output is supposed to be fairly good. All these factors one would expect the rural incomes to be better this fiscal year and that could drive rural good growth. We are also seeing commentary from a few companies coming in that direction. So, given that the outlook for some of these sectors if you talk about whether it is the auto sector, currently the outlook is still weak, we are not seeing any kind of pick up but one can really hope that in the second half after the festive season there could be a pick up over there. Valuations in some of the sectors are not necessarily cheap, but they are reasonable. We have seen this in some stocks in the sector underperforming. So there is nothing really cheap but rather reasonable valuations. It is more about the delta change. If we see the trend changing, then we could see upgrades in the earning cycle and this sector can start to outperform. But I would be more constructive on some of the sectors related to the rural economy rather than urban consumption. The grain of truth here is that small and midcap stocks have rich valuations and there is no second view about it. Yet small and midcap stocks tend to outperform and continue to get inflows. Where is this entire cohort of small and midcaps headed? Mahesh Patil: In the post Covid period, the earnings growth of the midcap and smallcap companies was much higher than the largecap or the broader market and that was one of the factors. Live Events You Might Also Like: Is IT a value buy or a contra buy now? How will NBFCs fare? Mahesh Patil answers Obviously we had seen a lot of money coming into the sector and we saw a rerating of that sector also. So, it is a combination of higher earnings growth and PE multiple expansion which led to the kind of outsized returns in the small and midcap sector. In the last nine months, we have seen that earnings growth has kind of converged a bit for the midcaps, especially if you look at it compared to the largecaps, it is more or less in line, and valuations have also corrected to some extent. But they are still expensive, especially in the midcap space. Now, the question is whether the growth in this midcap and smallcap sectors, at least the outlook over there is better than the largecaps. Post the reset that we saw this year, at least on a bottom-up basis, we are seeing that in the midcap and smallcap universe, the earnings growth is slightly better than the largecap companies. If that is the case, then while the valuations are still higher, if they are able to exhibit better growth, then one can see people moving away from mid and smallcaps. That money will start to again come back into the sector and we have seen early trends of that happening. So, I would say that while the risk-reward is better in the largecap stocks because in a market correction, any kind of a risk-off globally will provide that downside, but in a three-year, five-year view, midcap and smallcap bottom-ups will possibly still in the Indian market see a better growth outlook on domestic side and end up outperforming.
Economic Times
05-06-2025
- Business
- Economic Times
How will midcap and smallcaps perform vis-a-vis largecaps going ahead? Mahesh Patil explains
Mahesh Patil of ABSL AMC suggests mid and small-cap companies may see renewed investment. Despite higher valuations, their long-term growth potential remains attractive. Rate cuts could boost urban consumption, particularly in mortgages and autos. Rural economy shows promise with better real wages and good monsoons. While auto sector outlook is weak, a post-festive season pick-up is possible. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads , CIO,, says in the post-Covid period, mid and small-cap companies experienced higher earnings growth compared to large-caps, fueled by increased investment and sector re-evaluation. While earnings growth has converged and valuations have corrected, mid and small-caps still offer a better long-term growth outlook, potentially attracting renewed investment despite higher valuations and are two parts to it. One is urban and the other is rural. Urban is more dependent on to some extent also on interest rates because a lot of urban consumers have got mortgages and with interest rates coming down that should support over there. So, yes, clearly urban consumption can see improvement if we see more rate cuts, whether it is the mortgage sector, whether it is the auto sector. But the rural economy is also very important and there are some tailwinds there on the consumption has been trending down, so the real wages are now looking much better over there. Monsoons have been good. This year the crop output is supposed to be fairly good. All these factors one would expect the rural incomes to be better this fiscal year and that could drive rural good growth. We are also seeing commentary from a few companies coming in that direction. So, given that the outlook for some of these sectors if you talk about whether it is the auto sector, currently the outlook is still weak, we are not seeing any kind of pick up but one can really hope that in the second half after the festive season there could be a pick up over in some of the sectors are not necessarily cheap, but they are reasonable. We have seen this in some stocks in the sector underperforming. So there is nothing really cheap but rather reasonable valuations. It is more about the delta change. If we see the trend changing, then we could see upgrades in the earning cycle and this sector can start to outperform. But I would be more constructive on some of the sectors related to the rural economy rather than urban the post Covid period, the earnings growth of the midcap and smallcap companies was much higher than the largecap or the broader market and that was one of the we had seen a lot of money coming into the sector and we saw a rerating of that sector also. So, it is a combination of higher earnings growth and PE multiple expansion which led to the kind of outsized returns in the small and midcap sector. In the last nine months, we have seen that earnings growth has kind of converged a bit for the midcaps, especially if you look at it compared to the largecaps, it is more or less in line, and valuations have also corrected to some extent. But they are still expensive, especially in the midcap the question is whether the growth in this midcap and smallcap sectors, at least the outlook over there is better than the largecaps. Post the reset that we saw this year, at least on a bottom-up basis, we are seeing that in the midcap and smallcap universe, the earnings growth is slightly better than the largecap companies. If that is the case, then while the valuations are still higher, if they are able to exhibit better growth, then one can see people moving away from mid and smallcaps. That money will start to again come back into the sector and we have seen early trends of that I would say that while the risk-reward is better in the largecap stocks because in a market correction, any kind of a risk-off globally will provide that downside, but in a three-year, five-year view, midcap and smallcap bottom-ups will possibly still in the Indian market see a better growth outlook on domestic side and end up outperforming.
Time of India
22-05-2025
- Business
- Time of India
Fiscal health, low borrowing costs to drive growth: A Balasubramanian
"If you are age of 20, assuming you live for 100 years, 80% of your asset should be in equity. As you start progressing in age, your equity asset classes should come down and fixed income asset class should go up," says A Balasubramanian , MD & CEO, ABSL AMC. But what as per you is the ideal asset class allocation because what we are seeing is that Indian markets , of course, are finding a bit of a resilience amidst the global turmoil, other than that the gold was actually losing its shine, but once again making a comeback. So, as per you how should investors place their bet? A Balasubramanian: So, there are traditional model. My own belief is a simple traditional model easy to understand, it is more sustainable, which is nothing but 100 minus your age should be in asset in equity. Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Bantayan Unsold Cars In 2024 Are Almost Donated. See Price SUV Deals | Search Ads Search Now Undo If you are age of 20, assuming you live for 100 years, 80% of your asset should be in equity. As you start progressing in age, your equity asset classes should come down and fixed income asset class should go up. But at the same time, fixed income also should be looked at from the point of view of inflation against how much you earn. If the inflation is about 5%, if your interest rate is coming 5%, there is not worth keeping money in fixed income, it is worth actually putting money in equity because high inflation means somebody is taking your money, so that is the way asset allocation should be looked at. And gold as an asset class, given the fact now it has become a good asset class, silver has become asset class. So, as long as, there is a sellable value, you can go to the market, you can sell anytime, there is a price which is fixed on a daily basis. Live Events So, therefore, it becomes also one of the asset class that can be owned. So, therefore, from a broader investment point of view, 50% to 60% asset class will always be in equity and 35% to 40% asset class will be in fixed income, you need earning assets at all point of time, then actually rest 20-25% comes in the gold and other asset classes. But fortunately, the mutual fund side, as mutual funds also progress over a period of time, we also moved away from just simple product-based selling to a solution-based selling. So, today if you look at the whole hybrid asset classes such as balanced advantage fund or multi-allocation fund or multi-cap fund, all of them actually generally drives the nature of asset associations you invest in equity depending upon where the market is, higher equity depending upon the bullish view that you have on market and lower equity depending upon how bearish view you have on the market. These dynamic asset association which happens in balanced advantage fund, a dynamic asset association happens in multi-cap fund moving between largecap to midcap to smallcap and also having gold in multi-asset allocation fund. So, such kind of product actually gives the natural solution to the investors. You do not need to break your head and for you to do a planning of how much should go in equity, how much should go in debt that responsibility now can be given to the money managers by choosing these kind of funds, that is the beauty which mutual fund also has created over a period of time to remove the headache of investors in focusing asset associations on their own rather than choose a product which also serves equal amount of similar purpose. Certainly, but the last time we connected with you, you were of the view that the uncertainty in the markets is towards the fag end. What is your current view now and also give us some sense that from where do you believe the big trigger for the market will trickle in because we are getting to hear a lot of news on the tariff, the deals that are through, and even now the bond markets are giving us some signals. Are you concerned about that? A Balasubramanian: So, the way, I think when the tariff was being announced, from US point of view, it was supposed to be the one of the best decisions one could have expected in the sense it supposed to bring in trillion dollar by way of tariff collection, supposed to bring in trillion dollar by way of reduction in the freebies that US government has been giving to the local institutions and research subsidies and so on and so forth. So this now is getting diluted and now once again the shift is getting focused towards rest of us from an investing point of view. that is why the bond market actually reflects the fiscal correction which was supposed to happen, did not happen, would not happen as quickly as possible plus rating downgrade that happened recently on the basis of tariff uncertainty, inflation rising, slowdown in economy and so on and so forth. So, this uncertainty now getting back shifted to US market. At the end of the day, one should also remember despite interest rate being high in the US market, companies are doing very well. See, the company earnings are getting now better. Therefore, there is a disconnect between the bond market and equity market. Even I am very surprised whenever the yields are high, ideally speaking the equity market should actually correct. But this time it is not happening because the seven or eight stocks which are actually driving the US markets, their earnings have been pretty good, they are actually getting growth not just from US alone, they are getting growth from the international market. I assume a company like Microsoft would get large pool of the revenue coming from rest of us. The world is becoming a consumer of US products. Therefore, there is a bit of disconnect. Therefore, you come to a conclusion that interest rates have gone up, therefore, it is negative for equity, that is why this uncertainty will remain. But having said that, economies like India and the whole tariff thing, we seems to have managing it quite well and the impact on India is going to be relatively less and Indian economy is doing well. First time I am seeing in the last number of years, fiscal we are in a sweet spot. Indian fiscal is in sweet spot. Tax collections have been very good. GST collections have been roaring. If the companies are not doing well, if the consumers are not buying anything, why would GST collections will go up? Therefore, there is an implicit impact that we should see on the momentum and the earnings are coming back as we move forward and India is the only country where interest rates have been cut. So, the interest rate already have been cut by about 20 basis points. Today one-year and 10-year yields if you look at, it is about 6.2 for 10-year bond yields, so which essentially mean for companies for borrowing in the country is at very, very cheaper rates very-very high. I did meet one of the very small SME companies, which has got less than 40 crore turnover. I just casually asked him what is your cost of borrowing and he said my cost of borrowing is 8.5%. A company which has about 50 crore turnover and 8.5% he is getting money from the bank, which essentially means his profit could be higher and which otherwise he used to have earlier by way of high interest rate regime, paying high interest rate for him running the business that has now come down, therefore his margin will be higher. He will be able to create more employment. From 50 crore, he can actually aim to become 100 crores which is an aspirational change that has come at the mid-sized companies and also the cost of borrowing. The bigger plus point for India is actually the cost of capital in India has come down so much and companies will be able to deliver better numbers as you move forward. So, if rates go down, that means somebody will take a haircut, either an NBFC will take a haircut or a bank will take a haircut or the unorganised lender will take a haircut. So, while interest rates going down, it is great news for corporate, it is great news for consumers. Who will take the haircut? A Balasubramanian: So, there is no haircut. It is about how much money you make. We are keeping in mind the band in which you must lend. So, after adjusting your cost, so you keep a NIM of say 3% to 5% or 6-7% which is which you lend. So, therefore, ultimately these businesses are driven by the NIMs and other good thing on this sector is absolute profit that they make over a period of time, I think they will keep rising. So, balance sheet size increasing, your top line is increasing, therefore your bottom line is increasing. So, necessarily the interest is coming down, only the period where interest rate could happens, you are not able to pass on the drop in interest rates, even on the deposit holders it takes some time, so there is a transition time of about three to six months you can say, on transmission of interest rate both on the lending side as well as on the deposit side, but otherwise this sector will remain one of the big sectors given the fact that they are proxy to the economy and they are the one creating businesses, therefore they will remain the sector to watch out for even going forward.
