From last Diwali to now, it has been a bit of a rough patch. Will it be great the year ahead?
We have faced so many challenges over so many years. Ultimately, it has paid to be positive. If Diwali had been 15 days ago, the views would have been so much negative. Things have dramatically changed over the last 15 days and almost all our headwinds and challenges are slowly getting resolved. Obviously, a big challenge — election — is coming up but other than that, all macroeconomic factors, be it oil, currency, US elections, NBFC, liquidity all are behind us more or less. We will get there and as long as economy grows, returns will definitely be made in Indian equity markets.
You are positive on select NBFCs, particularly the gold finance and housing finance companies with balanced ALM position. How should investors approach this space? Are there any specific names like a Muthoot?
You are right. Select NBFCs definitely look great and investors who want to invest would be fortunate to get this kind of reaction. They were the darlings of the equity markets and suddenly almost all the good NBFCs are down 25% to 40-50%. We also understand the dynamics of the Indian economy. The overall exposure of retail to any kind of loans is 10%. Mortgages have a 20-year structural opportunity and in a sense what has happened due to this short-term upheaval is that good and well-run NBFCs would start to gain market share.
Also, good housing finance companies which have low exposure to developer loans, gold finance companies which have very short duration loan so there is no asset-liability mismatch plus the ability to pass on any cost increase is very high there, are good choices. Also, commercial vehicle finance companies are something we like because there is a structural uptick there.
There are a lot of these NBFCs within the overall financial services space. I would say that non-fund based NBFCs, whether we have some wealth management companies, select other sort of financial services companies which are indirectly connected to the equity markets also look worth considering at these levels.
The pond where you fish is the semi-midcap, semi-large cap and the midcap space. Should one run away from mid and smallcap stocks? A year ago, everyone thought buying midcap stocks was like buying gold and now everybody is saying that if you are buying midcap stocks, you are buying rusted iron!
Just to give you some data points – January to March, largecaps outperformed both the midcap and smallcaps. April to June and July to September again the same thing happened. But things have changed since 1st of October. Since October 1 till date, midcaps and smallcaps are outperforming the Nifty by almost 4 to 5 percentage points.
Obviously, we have had a major downtick. I would say that we are done with it. Overall, however, it is more a stock specific scenario when you invest in mid and small cap. In this quarterly numbers we have seen two-tier results. There is one set where the results have been disappointing but there is another set where the results have surprised on the positive.
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