And there are some news flows especially the major one being tariffs and so on and so forth, which has impacted some part of the sectors and that is one of the major concerns across the globe if you were to see it.
But if you were to think about it India in a way is relatively bit insulated. There could be certain pockets like auto and pharma which could be impacted. But one of the major issues that is happening across the globe, India seems to be relatively not so affected in that sense.
So, with that as a background, if you were to look at valuation at the current point in time and especially if you look at the largecap liquid pocket where we kind of operate in through our products, so there what we see is the valuations are nearly fair in most of the sectors, especially if you look at the financial space which is kind of a large overweight, things are much fine on the valuation parameters. But I would not say that is true in small and mid, where the significant correction could, it can come. The other point is on the earnings trajectory, if you were to look at it, the past two quarters have been pretty bad in terms of the earnings pickup and there could be several one-offs that had plagued the earnings in those particular quarters. But incrementally we are expecting a gradual pickup that might happen. Now, earnings are not going to come in a hurry, but there would be a gradual pickup that we see. So, if you were to look at the largecap space, a combination of earnings growth and the valuation being relatively okay, one can expect reasonable returns going ahead in the largecap liquid part of the bucket. I want to understand what lies ahead for the month of April. You have given us a broad perspective, but what else besides these April 2nd reciprocal tariffs, what are going to be the other key triggers and hence which sectors are you betting big on?Christy Mathai: So, again, month to month, we have a longer-term horizon when we look adding to stocks individually. So, if you were to clearly look at the long-term triggers, so one of the large overweights for us is financials, as I said. Within that, banks are a significant chunk of our allocation, especially the private sector bank. Now, some of the issues that have been plaguing that sector over the last two years, especially on the regulatory front, the increase in risk weight, certain other regulations which has kind of curbed the growth and also the normalisation of credit costs that we see, those are some of the negatives that has played out in the recent past, but incrementally, as we are seeing the liquidity in the system is kind of easing a bit, I would not say the deposit headwind has kind of gone away, but relatively we see the impact of RBI infusion of liquidity in the system looks like that is going to take shape as we progress through the FY26. The other aspect is, of course, on the growth coming back because courtesy some of these regulatory headwinds we have seen the growth across the system also fall.
Advances growth of the loan book growth across this also is going to move up as we go along. And the most important point in terms of valuations, where we think most of these banks are trading at relatively reasonable valuations, that kind of makes us positive within the banking space, there are some asset quality concerns but we largely look at it from a perspective of normalisation of credit costs, which is going to happen after COVID, two-three years of fairly benign credit costs, now things are getting normalised, so we interpret it that way.
The other large overweight for us or allocation to us is within the IT services, which is in the midst of turmoil a bit. If you see past one, one-and-a-half months, the outlook has kind of a bit deteriorated given some of the challenges that we are seeing in US, but if you were to think about it long-term, it is very difficult to call out what would happen to discretionary spend in the immediate term, given some of the pressures that we are having. But if you were to look at over a longer period of time, it has been almost two year plus of no services outsourcing growth single digit, so that makes us positive.
I have your latest portfolio holdings from the 28th of Feb. It is 28th of March. We are exactly one month after that. In this last one month, Nifty has seen quite a bit of recovery, if you could call it so, after the kind of correction that we have been seeing over the last couple of months. Tell us if you have made any changes in terms of your stance to your portfolio, anything that you have entered, have you booked profit somewhere or have you used this dip as an opportunity to buy? Tell us how you are positioned and if any changes at all that you have made to this portfolio that you manage?Christy Mathai: So, in the last several months, somewhere our cash position sort of in the portfolio, which is truly a reflection of what we see with our portfolio companies, there is not reasonable upside in the portfolio companies that we have, so generally we either sell it out of some position or trim and cash as a result builds up.
So, our cash was close to around 16-17% somewhere in October and now that has gradually come down. It is close to about 12% near abouts. There are market actions which can move up. For example, if the equity market did pretty well in this month, so that might suppress the cash a bit.
But broadly, we have allocated quite aggressively in the market fall that has happened and more recently, we have been adding to certain IT names, which has corrected quite a bit, some within the utility space because again within the whole PSU fall that we have seen, a lot of good utility companies have also kind of been hit pretty hard.
So, we have found some allocation within that. We also added some position within the consumption space, but this is more to do with the durable space where we think the companies that we have invested in, there is a distribution channel, the optimisation that is happening that should hold the company in good stead.
So, broadly, we have allocated within this fall quite a bit. And even more if there is some more correction, would be happy to deploy more.
So, when you speak about all of these sectors, let me pick on the IT space and let me get your thoughts on where are you seeing value in the IT space because that sector is also under a bit of anxiety about Donald Trump’s policies, particularly with respect to the H1-B visas and, of course, we have seen commentary from industry players that this is going to be a year of single digit growth.Christy Mathai: So, there are two things to call out. Number one is, of course, if you were to look at the whole visa issue which was quite evident in the first term of the Trump presidency, a lot of Indian companies have upped their localisation effort and so on and so forth in the first term itself.
So, if you look at any large IT services player, the US revenues bulk of the delivery in terms of, let us say, the onsite happens to local talent, it could range from anywhere 50% to 70% of the workforce therein, depending upon the company that we choose, so that risk to us is a bit less.
But the more important question is what will happen to the discretionary demand. There were signs of it picking up, especially if you were to go by the last quarter commentary by most of the majors, now looks like there is a turn in that because in the immediate term what we are seeing is, if the US macros are not so conducive, as it was expected, will the tech spend continue.
So, there are senses like it is, again, very difficult to predict, but it has been a prolonged period of time where the IT services spend, I am talking about the services spent by let us say the largest vertical for many of the IT services would be banks, that has been pretty muted.
And one cannot be looking at such muted growth for a very long period of time, it is post COVID and it has been two, two-and-a-half years. Some of the COVID benefits, there was large TCV wins during that period and some part of it moved away, we think bulk of those discretionary cancellation and so on and so forth, issues are behind us. So, most of the growth would be driven by what we see as a current expense.
So, it might be very well muted for another one or two quarters things, after which things will settle in. But we think some of the largecap names, again, our preference within this pocket is towards the largecap, they are better placed in terms of wading through such issues that has happened in the past also, they can manage, the slowdown in discretionary consumption and so on and so forth.
So, FY26 growth might look a bit lower on the lower side but if we also bring in the fact of valuations and you look at any other sector, relative bet within the other sectors, IT services still reasonably placed for the kind of return ratios that they operate. So, we are fairly placed on the IT services from a long-term perspective, not just looking at the short term.
