“We believe that India will attract a higher weight on the MSCI EM index, and we will see more FII participation into Indian equities taking the markets to new highs,” Sharma, the co-founder of the PMS firm, told ETMarkets in an interview. Edited excerpts:
Indian equities have hit fresh record highs. Do you see the momentum sustaining or would you call for some caution?FII flows became negative starting October 2021. But over the last 4 months, we have seen a strong inflow from FIIs into Indian markets.
If you look at the known devils in the market, most of them are factored in be it inflation, war situation, recession probability in some developed nations, supply chain and energy crisis.
We are now seeing improvement in many of these macro factors for now.
Then, if you look at the results of Q2, we have seen some companies reporting fall in revenues to the tune of 10-30%, while some also reported a dent in operating margins.
The commodities have corrected over the last few months and the conviction on Q3 and Q4 results coming from the management commentaries is positive. So, we are looking at improvement in topline and margins hereon if you consider the known devils.
Since the broader markets have not yet rallied, the valuations there are very comfortable currently and, hence, we see the momentum sustaining and transferring to the broader markets over the next few months.
The factors which are not known or not completely discounted by the markets can impact the rally. We are living in a very dynamic world where the market cycles have become shorter.
How have you managed the market volatility we have seen this year? We believe in keeping a disciplined approach while managing funds. We mostly follow an equi-weight allocation among our high conviction 15-20 stock portfolio ensuring a proper diversification.
We stagger the allocation of capital to 1-6 months time frame depending on the market opportunities.
Portfolio valuations are currently at a 40% discount to the benchmark, which gives us a good cushion against any volatilities in the market.
We are exiting stocks wherever we are seeing good returns (say 100%+) and keeping a churn to ensure that we are booking profits at regular intervals. Usually, we keep a 25% churn in portfolios.
At the end of the day, we believe that if our selection is good, fundamentals of the company are strong, management is good and the business outlook in the long term is intact, the valuations will follow.
What are your top holdings? Any new entry or exits in your portfolio?Our top holdings include many broader market picks. We continue to believe in PLI, Make in India, China plus one as the themes for this decade.
We like pharmaceutical, chemicals, textile, and auto components sectors.
We are booking profits in some of our companies like
, , and have exited considering the red flag of political involvement of the family.
We have recently added
and are regularly adding our model portfolio companies in a staggered manner.
What would be your top bets for 2023?We like Finolex cables, Bharat Forge,
, Aarti Drugs, and as some of our top bets for 2023.
India outperformed global peers in 2022 because of upbeat domestic outlook, and this saw preference tilting towards domestic-linked companies from export-oriented sectors. Do you see this phenomenon staying through in the near term?
If you look at the consumption from some of the large developed economies, they will definitely be impacted in the near term.
If you look at India and the export opportunity, we see 2023 to be better for exports as India is gaining market share in many sectors. Supply chain issues settling down in 2023 will be a positive for exports
We are seeing one of the highest capex, support from government policies and the country attracting all time high FDI.
Infact, the consumption in India can be impacted in 2023 as we see a higher trickle-down impact on low-income households in India.
Equity funds have seen sustained flows in 2022 month after month. Do you see a similar trend in 2023? 2022 can be dedicated to retail and domestic institutions allocating capital to equities in India. They have in a way also isolated the markets from a larger volatility.
We believe that the retail participation has just started for equity markets in India and this penetration through mutual funds and smallcases will increase drastically and consistently over this decade. We should reach atleast 30 crore demat accounts over this decade.
We are seeing the FII money coming back to Indian markets. Although, if you look at the % of FII capital that flew out over the last 1 year vs the overall AUM of FIIs in India, the same was less than 4%.
We believe that India will attract a higher weight on the MSCI EM index, and we will see more of FII participation into Indian equities taking the markets to new highs.
You mentioned how retail participation is likely to grow in India. So, will SIP contributions increase further? Any ballpark figure you see by the end of FY23? As far as retail participation (direct or through mutual funds) is concerned, we believe that we have not even seen the tip of the iceberg.
FII holdings have reached a 10-year low while the retail and DII holdings have reached a record high.
We have seen continuous growth in SIPs and demat accounts being opened even in the worst of news over the last 1 year. We are seeing a shift in the demographics, the conviction, the contrary approach towards allocation and the attraction towards allocating money in markets. This is definitely a decadal trend that we are seeing. Retail holdings on the captable of the companies will increase over the coming years. We see monthly SIP inflows crossing Rs 16,000 crore in 2023.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)