So, the underperformance in the real economy in the US is as much as five-and-a-half times to 20 times, nearly a 4x kind of a differential in how tech has done and how this segment of the market has done.
If you compare the emerging markets to the US, something similar has happened over the last 15-20 years. Now, what this tells you is that there has been a certain regime in place which has led to this outperformance in a certain segment of the market, first US, second tech, particularly tech in US, and that regime in our judgment is changing and changing fast.
What we will see going forward in the context of US is that that catch up between Russell 2000 and Nasdaq will happen, at least that is our view. And second, given the policy of the US establishment today, wherein they believe that their currency has appreciated at a time where their current account deficit has gone up meaningfully, all the manufacturing has gone out of US and on the other hand, if you look at China, where current account surplus has gone up meaningfully, still the currency has depreciated versus the US dollar, which defies all macroeconomic fundamentals that they are looking to correct by depreciating the currency and by ensuring that these tariffs bring manufacturing back into the US, which will mean the brick and mortar companies, the manufacturing companies on the ground, those should start doing well. And tech, etc, and MAG-7 in particular should go into a long slumber. And in that context, I would choose to look at the bigger picture, like the last 20 years and thereabouts, so that I get a picture of the next five years, rather than looking at a day where the frequency of volatility, etc, can be quite high and in fact, just pleasantly that offers me the right prices because for the next five years I see that emerging markets in general and India in particular will be a big beneficiary of the trend that we are seeing in the markets today, the macro trend. Today we are using the word decoupling, soon we can start using the word recoupling. It looks all great. 2008 also looked all great. Subprime crisis unki problem thi. Subprime crisis happened in America, but it eventually hit everybody.Anshul Saigal: I completely agree, although I must say in the same breath that subprime had excesses of a different order altogether and when I see companies today and the aggregate of companies today, I do not see those kinds of excesses in their balance sheets.
At that time, we had balance sheets riddled with debt and capacity is getting added on debt capital. Today, capacities are being added on equity capital and balance sheets by and large are clean and do not have debt on them.
So, the impact that we saw then is unlikely to play out today, one is that. Second, even in the US, of course, in the near term this volatility will happen, but if you just step back and look at the tariffs, of course, it is a tax but it is also a message.
It is a message from the US establishment to all those countries on whom the tariff has been applied to come on the table and negotiate better terms.
The markets over there are also telling you that these countries are bound to come back to the negotiating table with the US, negotiate for better terms, and then come to some sort of a middle ground. It is not like this is the be all and end all of what has happened.
Also, we need to look at the person Trump and his past to understand what he is trying to do. He is a dealmaker. He is someone who is a businessman. He is bringing people to the table. He is pulling them to the table.
Just left on their own, they would have never come to the table. He is giving them a nudge. And on that count, I do not think that this tariff and also the fact that it has been spoken of so much should be feared, I think that this will settle in some time.
Volatility, two steps up, one step down, that may continue to happen. But this is an event which has played out. We should not fear it too much. I think that this will only offer better prices for us to buy for the next two to three years.
And yes, banks definitely are the one that everyone is watching out for very closely, given the fact that it is a domestic-oriented stock and the narrative right now is just that, focus on sectors that are actually mostly domestic-oriented. In that, do you think bank stands out? Also, does the HDFC Bank or the likes of SBI would stand out for you?Anshul Saigal: Yes, banking sector looks very interesting in terms of valuation and also the fact that there is very little international connect in the sector, that also holds well for the sector today.
Now, if you look at the PSU banking space, you can throw a dart, pick a stock and that will be trading at between 0.5 and one-time book, 5 to 10 times earnings, that is a recipe for very low downside and material upside whenever growth picks up.
On the other hand, if you look at the private sector banks, the quality private sector banks, some of which you named HDFC in particular, you look at the last five years performance of these banks and you will notice that other than the last six months or eight months, these banks have consolidated and done nothing in price action over the last five years. In this period, of course, these banks have faced problems.
Those problems seem to be behind us. One of those problems, recent problem for HDFC Bank was their credit deposit ratio, which was really strained for them in comparison to the peers and that seems to be assuaging as we speak and these banks have enough capital to go out and grow.
The Indian economy and the outlook for corporate India is quite strong, which means that there is that leg of growth, which is ahead of the Indian economy and will translate into growth for these banks and as a result, valuations being where they are, having halved over a five-year period, look quite reasonable. So, banking as a space does look quite interesting and valuations are quite reasonable in this space.
What would you buy, one, two, three, four? What are those one, two, three, four stocks you would like to buy every time markets are down?Anshul Saigal: Most importantly, I will buy stocks where earnings growth is not in question or where earnings growth because of the current tariff situation will see a tailwind.
I think that exporters of textiles to the US will see significant order booking because tariffs on that segment for India have been far lower than competing countries like China, Vietnam, etc, even Bangladesh.
And so I think that this is a space readymade garments, bed and bath linen, exporters to the US that will see order bookings like they have never seen before, that will be the space to buy.
I think that value retail, if you look at their results over the last three-four quarters and even the initial commentary that they have given for the March quarter, value retail looks like a space which is seeing secular tailwinds in demand and I think that this is a space which will be very interesting over the next one to two years, also because this space or demand patterns squeezing down over the last two to three years because of covid, etc.
Some capital goods companies have corrected by 50-60% and have come to valuations which are quite reasonable at this time given the opportunity size over the next few years.
I would really look at those plays. Within pharma there is a very interesting opportunity. People are talking about CDMO as a huge multi-year opportunity.
We are only $2-3 billion in a $150 billion global market. Now, even if 2-3% of that market shift to India because of geopolitics, etc, there will be a doubling of the Indian market size as a result.
So, you could either pick the best CDMO company that you think is going to do well or you could look at equipment suppliers to CDMO companies, which will obviously benefit if the market size increases and it is almost like if you are positive on autos buy the tyres, it is something like that that you could play in in the CDMO space.
So, these are some opportunities and segments which I am very bullish on and in my personal portfolios, we have been buying.
