Latest news with #KrishnanVR
Mint
21-07-2025
- Business
- Mint
Expert view: Trump tariff risk is real; slowing GDP growth a key concern, says Krishnan V R of Marcellus
Expert view on Indian stock market: The risk of Trump tariffs is real, as the US is India's largest trading partner, and we currently run a large trade surplus with them in both goods and services, says Krishnan V R, Chief of Quantitative Research at Marcellus. In an interview with Mint, Krishnan shares his views on Indian stock market triggers, the potential impact of tariffs and his strategy for the US stock market at this juncture. Here are edited excerpts of the interview: GDP growth moderated last year, and the current estimate is for growth to be around 6-6.5 per cent this year and next. With core inflation trending around 3.5 per cent, I do not see much scope for aggregate revenues to grow at more than 12 per cent for most domestically facing businesses. We remain cautious about mass consumption given India's inability to create jobs at scale and stretched household balance sheets. However, an easing inflation backdrop coupled with additional supportive monetary and fiscal policy steps could trigger a near-term recovery in urban consumption. Slowing GDP growth and lower inflation do not bode well for corporate earnings growth. Q1FY26 also saw tariff announcements and the rise of geopolitical risks. I think we need to wait for a material uptick in income growth for a broad-based consumption recovery, as I do not see any additional structural triggers apart from the tailwinds highlighted above. The tariff risk is real, as the US is India's largest trading partner. We currently have a large trade surplus with the US in both merchandise goods and services. It is clear that the US administration intends to use the threat of tariffs and associated uncertainty as a tool for trade negotiations. Given that the US will demand meaningful concessions for Indian market access in case there is a trade agreement, it would be fair to expect that our trade surplus with them might shrink in the near term. However, India's relative tariff levels and export competitiveness compared to other countries will determine the long-term impact of tariffs on its overall goods trade deficit. Firstly, steady and growing domestic flows predominantly through mutual funds, despite a brief drawdown between Sept-2024 and Feb-2025, have been a stabilising factor for equity markets in the face of erratic FII flows. Secondly, domestic mutual funds and retail investors have been net buyers of equity over the last few years, even as foreign investors and promoters have been reducing their stakes. From an investing standpoint, this reallocation of household savings to financial assets offers opportunities to pick well-run companies in broader financial services space like insurance, wealth management, RTAs, depositories, AMCs, among others, which stand to benefit in the long term. According to our global equities team, broad-based index exposure calls for caution at this juncture, and a more selective, bottom-up approach is warranted. Many high-quality businesses are currently lagging—not because of fundamentals, but due to a lack of near-term earnings triggers. On the other hand, companies benefiting from recent tailwinds may be pricing in overly optimistic assumptions. In such an environment, valuation discipline and thoughtful stock selection become critical. For patient investors, this setup also creates a fertile hunting ground—several high-quality, under-the-radar businesses trading at attractive valuations can offer meaningful long-term upside. While US stagflation concerns are valid, they have not been borne out in reality, at least not yet. US jobs data, indicated by non-farm payrolls, surprised positively in May and June. However, the combination of a cheaper US dollar and higher long-term USD yields would suggest some nervousness about holding dollar assets. If US recession risks do play out, then it will obviously have knock-on effects on EM (emerging market) economies, especially those where trade and exports are a meaningful portion of GDP. For India, domestic consumption is more important, and hence, the first-order impact of the US slowdown on the Indian economy will be relatively less. Read all market-related news here Read more stories by Nishant Kumar Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
Economic Times
10-07-2025
- Business
- Economic Times
Tariff fears hit pharma, but long-term story remains intact: Krishnan VR
Live Events (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel "Within this framework, if we consider sectoral strategies tactically, especially given recent RBI actions in the last monetary policy—cutting CRR by 100 basis points and the repo rate by 50 basis points—these are somewhat positive developments, particularly for companies offering fixed-rate loans. These loans won't be immediately repriced to a lower rate, while the cost of funding (i.e., liabilities) will fall faster. This can support net interest margins for companies like vehicle financiers," says Krishnan VR , begin with, corporate earnings growth in India is likely to become scarcer going forward. If you look at nominal GDP growth, broadly speaking, real GDP is forecasted at around 6–6.5%, while inflation has come down to about 3.5–4%, based on last month's CPI reading. Even with a few percentage points added here and there, in a best-case scenario, aggregate corporate earnings growth is unlikely to exceed 12–13%.Furthermore, Indian corporates are significantly less leveraged today compared to five years ago. So, the difference between revenue growth and bottom-line EPS growth should be minimal at the aggregate level. As a result, we believe companies that can deliver earnings growth in this environment will command a premium—which is to be therefore, should be more selective. Secondly, they need to be more valuation-aware—both relatively and absolutely—and focus on fundamentals rather than this framework, if we consider sectoral strategies tactically, especially given recent RBI actions in the last monetary policy—cutting CRR by 100 basis points and the repo rate by 50 basis points—these are somewhat positive developments, particularly for companies offering fixed-rate loans. These loans won't be immediately repriced to a lower rate, while the cost of funding (i.e., liabilities) will fall faster. This can support net interest margins for companies like vehicle keep in mind that over the past year, the yield curve has steepened by about 100 basis points compared to its previously flat the tariff-related headlines—which we now see almost daily—let's take the IT sector as an example. It's down around 9% in the first half of this year, compared to the Nifty's decline of about 8%. This indicates the extent of derating in the sector, possibly driven by fears of a US recession or economic if we actually look at US economic data from May or the previous month, it has consistently surprised on the upside. For instance, last week's payrolls data was stronger compared to the same period last year. So, the bearish outlook on the US economy isn't supported by hard data as of that, the underperformance of IT stocks seems to be more sentiment-driven than fundamentally justified. There could be some scope for clawing back the derating, even though we don't see any strong fundamental triggers. Most large-cap IT companies are still delivering mid- to high-single-digit revenue growth, so fundamentally, there's no major the other hand, sectors like pharma are facing real tariff-related issues. We even saw fresh news from the US yesterday. Still, if one adopts a longer-term view, many Indian pharma companies may present attractive we take a long-term view, we recently published a study comparing the performance of cyclical or value stocks—like low P/E stocks—with quality or defensive stocks over a 20-year period. Interestingly, the overall performance of both styles has been broadly typically happens is that one style outperforms the other over shorter spans—say 5 to 10 years. For example, from 2002 until the Lehman Crisis, value stocks did exceptionally well. Post-Lehman until COVID, quality stocks took the lead. Then again, post-COVID, cyclical stocks outperformed—driven by factors like strong government capex and the fact that many of these stocks were heavily derated during COVID due to lockdown-related a result, these stocks performed strongly over the last five years, outpacing defensive quality portfolios by a wide looking ahead, with government capex likely to moderate and inflation trending lower, the environment may once again become more favourable for quality and defensive investing—compared to the cyclical names that have already had a strong run.
Time of India
10-07-2025
- Business
- Time of India
Tariff fears hit pharma, but long-term story remains intact: Krishnan VR
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads "Within this framework, if we consider sectoral strategies tactically, especially given recent RBI actions in the last monetary policy—cutting CRR by 100 basis points and the repo rate by 50 basis points—these are somewhat positive developments, particularly for companies offering fixed-rate loans. These loans won't be immediately repriced to a lower rate, while the cost of funding (i.e., liabilities) will fall faster. This can support net interest margins for companies like vehicle financiers," says Krishnan VR , begin with, corporate earnings growth in India is likely to become scarcer going forward. If you look at nominal GDP growth, broadly speaking, real GDP is forecasted at around 6–6.5%, while inflation has come down to about 3.5–4%, based on last month's CPI reading. Even with a few percentage points added here and there, in a best-case scenario, aggregate corporate earnings growth is unlikely to exceed 12–13%.Furthermore, Indian corporates are significantly less leveraged today compared to five years ago. So, the difference between revenue growth and bottom-line EPS growth should be minimal at the aggregate level. As a result, we believe companies that can deliver earnings growth in this environment will command a premium—which is to be therefore, should be more selective. Secondly, they need to be more valuation-aware—both relatively and absolutely—and focus on fundamentals rather than this framework, if we consider sectoral strategies tactically, especially given recent RBI actions in the last monetary policy—cutting CRR by 100 basis points and the repo rate by 50 basis points—these are somewhat positive developments, particularly for companies offering fixed-rate loans. These loans won't be immediately repriced to a lower rate, while the cost of funding (i.e., liabilities) will fall faster. This can support net interest margins for companies like vehicle keep in mind that over the past year, the yield curve has steepened by about 100 basis points compared to its previously flat the tariff-related headlines—which we now see almost daily—let's take the IT sector as an example. It's down around 9% in the first half of this year, compared to the Nifty's decline of about 8%. This indicates the extent of derating in the sector, possibly driven by fears of a US recession or economic if we actually look at US economic data from May or the previous month, it has consistently surprised on the upside. For instance, last week's payrolls data was stronger compared to the same period last year. So, the bearish outlook on the US economy isn't supported by hard data as of that, the underperformance of IT stocks seems to be more sentiment-driven than fundamentally justified. There could be some scope for clawing back the derating, even though we don't see any strong fundamental triggers. Most large-cap IT companies are still delivering mid- to high-single-digit revenue growth, so fundamentally, there's no major the other hand, sectors like pharma are facing real tariff-related issues. We even saw fresh news from the US yesterday. Still, if one adopts a longer-term view, many Indian pharma companies may present attractive we take a long-term view, we recently published a study comparing the performance of cyclical or value stocks—like low P/E stocks—with quality or defensive stocks over a 20-year period. Interestingly, the overall performance of both styles has been broadly typically happens is that one style outperforms the other over shorter spans—say 5 to 10 years. For example, from 2002 until the Lehman Crisis, value stocks did exceptionally well. Post-Lehman until COVID, quality stocks took the lead. Then again, post-COVID, cyclical stocks outperformed—driven by factors like strong government capex and the fact that many of these stocks were heavily derated during COVID due to lockdown-related a result, these stocks performed strongly over the last five years, outpacing defensive quality portfolios by a wide looking ahead, with government capex likely to moderate and inflation trending lower, the environment may once again become more favourable for quality and defensive investing—compared to the cyclical names that have already had a strong run.
Time of India
23-06-2025
- Business
- Time of India
Macros more favourable for quality growth style than value: Krishnan VR
Live Events If the current trend of slowing government capex growth, lower inflation and recent rate cuts continues, the macro environment is more favourable for quality growth style than value, says Krishnan VR , Chief of Quantitative Research, excerpts from a chat:We have seen improvement in market breadth due to the broad rally among small and mid-caps since March to the extent that both indices have almost recouped from the drawdown witnessed in the first two months of the year. Among factors, high beta and growth stocks have fared better over the last 3 months or high-quality franchises still delivering alpha, or is the market favouring a different style now?Quality focused indices have underperformed so called 'Value' stocks- which appear cheap on valuation multiples- both CYTD and on trailing 3-year and 5-year basis since Covid. However, if one considers a wider definition of quality style as companies having both Quality and Growth characteristics available at decent valuations, then it has held up relatively well in the current fiscal till date. Momentum as a factor has trailed a bit recently, given the sharp change in market direction between risk-on and risk-off over the last 6 months. Investors should always consider diversifying across factors for a smoother ride as individual factor performance can be macros turning globally, is there a recalibration happening in your quant models or factor weights?We prefer quality companies available at attractive valuations. On a relative value basis, quality stocks and some erstwhile consistent compounders look attractive today, considering the outperformance of value and cyclicals since Covid. With a slowing domestic and global economy, companies which can deliver reliable earnings growth are going to be scarcer and have lower risk of valuation non-consensus signals or patterns your models are picking up that the broader market might be ignoring?Like I mentioned before, Value style has been among top performing factors since Covid due to different reasons like topline recovery from lockdown (FY22-23), higher government capex spends, and then from the commodity spike followed by cool-off (FY23-24). However, if the current trend of slowing government capex growth, lower inflation and recent rate cuts continues, the macro environment is more favourable for quality growth style than discretionary names within retail and Autos, could benefit from higher consumer spending driven by lower EMI, easing inflation and reduced income tax outgo from changes announced in the recent budget. For long term investors, companies in the broader financials service sector like insurance, wealth management offer attractive plays on the structural trend of financialization of household assets, which is underway. Our investment approach remains sector agnostic especially vehicle financiers with larger exposure to fixed rate loans are well placed to benefit from recent rate cuts and easing liquidity. NBFCs with significant exposure to unsecured lending should also benefit as credit concerns abate and non-performing loans bottom out. CRR cut is marginally positive for banks though rate cuts could initially drag down their NIMs, as loan book reprices to lower rates and given the competition for IT sector is down around 11% this year versus 5% for Nifty50. So while a case can be made based on relative valuation, I have not seen any new fundamental trigger for rerating. Most largecap IT stocks have broadly delivered single digit revenue growth. Now with the economic uncertainty in the US due to tariffs and policy changes under new administration, the growth guidance remains muted, with most managements striking a cautious note on discretionary demand pickup in 4Q results season.
Economic Times
28-05-2025
- Business
- Economic Times
Is bottom-up investment strategy key to unlocking growth in today's market? Krishnan VR explains
Krishnan VR of Marcellus Investment Managers says given the current market uncertainty, investors are advised to concentrate on bottoms-up stock analysis, particularly within the mid and small-cap segments. Emphasis should be placed on identifying companies with strong growth potential, as growth is becoming increasingly scarce. Companies demonstrating consistent earnings growth over the medium term present lower valuation risks. Firstly, help us with your outlook on the markets because it seems like that the markets have seemed to be climbing the wall of worry, especially with respect to the tariff tantrum and the slower growth that was anticipated earlier. But from here on, how do you see the Indian markets performing and where is the tilt? Is it still with the largecaps or do you believe that now SMIDs are also offering some opportunity? Krishnan VR: In terms of the Q4 earnings season, we looked at the earnings performance of companies and roughly when you look at the earnings growth of Nifty 50 companies, it has been in mid-single digits. Bulk of the earnings outperformance seems to have come from banks and downstream oil marketing companies. And if you remove these two sectors, broadly earnings growth has kind of just met expectations. I would not go to sector specific commentary, we can discuss it in detail, but coming to valuations, again what I would say is when you look at aggregate indices whether it is mid and smallcap indices, when you look at the aggregate valuation, again Indian small and midcap indices are trading above long-term averages. You might argue that the valuations are high not only with respect to their own history, but also compared to largecaps or with mid and smallcap indices in other emerging markets which have similar growth if you look at things like the one-year forward price to earnings or a valuation ratio for an average stock, within BSE 500, at least per our calculation, today this number is somewhere around 33 times which is higher than historical standards and which gives an idea about the breadth of the extended valuation across stocks. So, when the recent rally in the last one or two months within mid and smallcap indices is put in the backdrop of these extended valuation, the one comment you could make is maybe the market is expecting some improvement in earnings growth for FY26, FY27, backed by an improving macro. But when I look at these valuations, it suggests that the wall of worry or some of the uncertainties around the ongoing tariff negotiations with the US, has not completely been priced in and there are also other structural issues. For example, the low wage growth in India which is impacting urban consumption as we know it. When I look at the growth outlook and some of these uncertainties and put this together against a backdrop of extended valuation, it is a worry. Given the current volatility that we have been seeing on the back of global trends, help us with some factors that we should be steering clear of and how to navigate this market? Krishnan VR: Obviously, every market is different and one can look at some points in history, but history seldom repeats but it often rhymes. So, given the uncertainty, I would strongly suggest that investors again focus on bottoms-up stories. Even when I talked about the mid and smallcap valuations, remember that mid and smallcap stocks or the mid and smallcap space in India is a very wide space. So, all the stocks excluding the top 100 stocks. In some cases, there are very long growth runways and obviously valuation should be seen in context of both profitability and valuation. So, look at bottoms-up stories, be stock specific as much as possible and at the same time focus on growth because we are at this point in the cycle where growth is going to become more and more scarce. And when growth becomes scarce, the companies which can deliver growth in whatever ways – it could be certainties of growth, it could be the longevity of the growth – become that much more valuable. So, even when you look at a valuation, there is a lesser valuation risk for a company which can deliver earnings growth over the next two-three years or even in the medium term. So, one strategy could be to focus on companies in a very bottoms-up way and on those which can deliver outstanding earnings growth. In your quant research you wish to highlight some sectors which tick many of those check boxes. Since people are finding it a little hard to find new ideas in this market construct, given the market correction and the tepidness, can you help us highlight some of the sectors that are looking good or rather building on some bit of momentum? Sectorally, where are you finding some tilt? Krishnan VR: We like financial services as such and because financial services is not just lending, not just banks and NBFCs, there is also wealth management, RTAs, and insurance. When you look at the wider financial services in India, whether it is insurance, life insurance, RTAs, wealth management, etc, they have very long growth runways. Stocks within these sectors have secular growth stories and even when you look at things like momentum, the earnings growth momentum has been pretty good. Estimates, etc, have been revised upwards over the last two-three years. So, when you look at it both from top-down perspective and even from a bottoms-up perspective, the broader financial services is definitely attractive, but our investing style is sector agnostic. We are looking at clean, well run, well governed companies with low debt, with the return on capital above cost of capital. That tends to be our criteria and you can find such companies in many sectors. We do not tend to be very top-down or take sector specific calls, but the broader financial services definitely look attractive. I also want your view on the earnings season. Q4 is almost over. Most of the Q4 earnings are out and FY26 and FY27 is when we can start seeing improvement. But when exactly in FY26 do you see improvement coming in? Could it be the next quarter like the Q2 or in the second half of the year? Also, do you think conditions like the early onset of monsoon could impact earnings in FY26? Krishnan VR: In terms of the earnings growth, the consensus is for baking in close to high teen earning growth for Nifty and this is over FY26 and FY27. Coming to your question on how this might pan out, at least for us, we see there could be two likely triggers for upgrades if at all. One could be, for example, the lower crude oil prices. India is a net importer of crude. For a lot of companies, their cost of goods or the cost of raw materials is linked to crude oil prices one way or the other. So, there would be some benefit on the margin if the crude oil prices stay where they are or even go lower. The other trigger for upgrading would be if we see some green shoots in urban demand and in my view that could be in the second half of the year if at all because we have just seen inflation that has come down. If you exclude commodities, gold, etc, the core CPI is down even below 4% now. With inflation easing and the lower personal tax outgo under the new tax regime, that would also be something that could give a fillip to urban demand and, of course, we already know that rural demand has fared much better in the last earning season in 4Q versus urban and if there is an early onset of monsoon, then it helps rural demand also to that extent. So, yes, I mean, we might see a bigger impact on the company's earnings if all these factors play out in the second half rather than the first half.
