This time around, of course, it is a lot of talks about tariffs, there is a lot of talk about a global recession, and there is also the incremental data point on the fact that we are slowing down as an economy as well.
So, it is fair to expect that we do continue to consolidate for a couple of quarters and we do have quite a few data points to look forward to over the next couple of months, starting with April 2nd, of course, followed by the RBI policy meet, and then a very-very important result season, which will set the tone as far as we are all concerned for the FY26 earnings outlook, which is critical as far as the market is concerned.
I am just taking a look at some of your mutual fund holdings. I am taking a look at the Sterling Value Fund right now. I can see that you are quite underweight on capital goods. On the flip side, there is an overweight coming in on financial services. Help us understand the rationale. We believe that financial services are in the leg up for a good run, this is what we understand with our interaction with other analysts as well. But what would be the rationale behind the underweight on capital goods given that the budget has been decent enough in February, so what is driving this rationale of being underweight on capital goods? And if also broadly you could share with us the other sectors that you are underweight or overweight on.Daylynn Pinto: So, underweights on capital goods and infrastructure in general are premised on two aspects. One is valuations had gotten very stretched for a whole host of these companies over the last year or so. There was too much euphoria and optimism being built into earnings estimates, so that is one reason that made us reduce our exposure. The second is, as far as the overall spending environment is concerned, we have kind of hit a near-term cap as far as the amount of capex that the government can do. So, we would require much more participation from the private sector to actually take us to the next level as far as capex growth is concerned. At this point of time given the slowdown that we are seeing across segments, demand continues to be missing in many categories, we really do not think that private capex is really going to kick off in a big way at least for the next couple of quarters. So that really sums up why our capital good underweight stays at this point of time. On the flip side, private financials which is where we are most overweight at this point of time, one is, valuations continue to remain fairly attractive and more importantly recently we have seen policymakers start to focus more on providing liquidity, start to focus more on looking at regulations which could potentially improve credit growth and these are two areas which have concerned most investors, especially when it comes to looking at financials over the last year or two years. So, at the margin we are seeing improvement in the overall environment for the financial sector, while we are seeing deterioration and possibly earnings downgrades for the capital good sector as such.
Let me also ask you about the new April series. Who do you think are going to be the new leaders?Daylynn Pinto: I think that is too short a time period for me to really comment on. April is really going to be driven by how the earnings of companies pan out, so that is really the way I am looking and waiting and watching as far as the market is concerned.
I was looking at this portfolio once again. You are slightly overweight when it comes to auto, a very nominal overweight coming in, but nonetheless it is a positive stance on auto. Now, here we have recently heard this announcement of Trump imposing 25% tariffs on the auto space and auto ancs. Would that change your positioning in the portfolio when it comes to autos?Daylynn Pinto: Yes, that is a good question. When you look at autos as an entire landscape, Indian autos is fairly domestic-oriented. So, whether you look at two-wheelers, you look at tractors, you look at cars, you look at CVs, so the entire gamut, I think most of the Indian companies are fairly domestic-focused with the odd exception of one or two that do export, but not primarily to the US.
So, to that extent these tariffs do not really rock the boat as far as the Indian auto names are concerned. When you look at tariffs overall, where we could see a little more pain as far as the auto sector is concerned is on the auto ancs side.
We are all still awaiting a little more clarity as to how those tariffs will shape up for the auto ancillary companies because there, there could be not only a direct impact to those companies that export to the US, but there could also be an indirect impact to companies that export to other car makers around the world who in turn export cars to the US. So, ancs would be a little more worrisome as compared to the OEMs where exposure is much more towards India rather than to having any direct links to the US as such.
How should investors then look at positions, should they be holding, should they be in a wait-and-watch mode considering that most of it is just a lot of uncertainty?Daylynn Pinto: We are all pretty much in wait-and-watch mode. And when you look and talk to corporates as well, they have the same sort of doubts that everyone has because until with some sort of clarity as to what kind of tariffs could potentially be imposed in your business, it is very difficult for you to make any incremental capital allocation decisions as such and that is where we believe the market is much more optimistic in general that tariffs will probably not fructify or not be as disruptive as what it appears and would not potentially cause a recession.
So, it is a little too early for us to get too bullish or to change our view from being in a wait-and-watch mode on this front. Let us hold out for a couple of days till April 2nd and let us see what happens.
