Hiren Ved, Director & CIO, Alchemy Capital, says, “I do not see largecap banks as the leader of the next bull market for sure, but will they participate and will there be a mean reversion in their returns, I certainly think so. Private financials, especially the lenders, were the leaders of the previous bull market. This time within financials, the non-lenders could be part of the leadership pack. So, exchanges, online brokers, market infrastructure players, asset management companies have a better chance of being leaders of the bull market but I just feel that given the underperformance of the large banks, you cannot have a new bull market and Nifty hitting new highs and these guys not participating.
Let us look at themes where markets have been disproportionately excited. Defence, power, railways, these are great businesses, a year from now, two years from now, three years from now, the businesses will be bigger. The companies will be bigger. Profits will be stronger but are markets pricing in FY27 and FY28 kind of an earnings setup already?
You are right. In many of these sectors that you mentioned, the markets are pricing in better growth higher for longer. On the other hand, when you look at areas like rural consumption or agrochemicals or even specialty chemicals, I think those are areas where stocks have corrected and the near to medium term weaknesses being seen. So it is about portfolio construction, I mean, you have to stay with the leaders but you also have to be mindful of the fact that a lot of the future maybe in the price. So that means that your timeframe is elongated for you to really make money. And even in these sectors, they may continue to surprise even on elevated valuation. So we do not know. But I think that as I mentioned early on, from a risk reward perspective, it is quite possible that sectors that have not participated or have not done well may incrementally now participate. There are opportunities there from a risk reward perspective and some of the darling sectors might go sideways and time correct for some time. But again, you cannot time all of these things, you have to stay invested if you really believe in the structural story, which we do.Exactly a year ago for the December year end special, the names you mentioned were largely the smashed out names out of fashion names; Paytm, Zomato and that call has rather worked well for you. Where are you picking your spots right now? I mean, if comeback and consumer tech and fintech was a trade you identified in December 2022, what would you like to identify in December 2023?
I will come back closer to the end of the year. But, you mentioned the internet names. I think last year was a great time to buy them. My sense is that if in 2024 we do have interest rates correcting and the US Fed cutting rates and then followed by a rate cutting cycle in India, there is a long runway of growth for companies like Zomato and Paytm. I think we still like them. I think there is still an opportunity to make money there. I would think that if you are a long term investor right now, we are looking at specific opportunities in agrochemicals, chemicals, pharma and even a few select manufacturing companies that have still not run up that dramatically.
Where would you be tempted to block or lock profits, whether it is risk management or a pure call on perhaps valuations because ultimately when you are buying something you will have to sell something because you are fully invested?
We would trim in some of our early bets that we have taken in manufacturing or for that matter any company which has become an outsized part of our portfolio. We have done very well on the ER&D side, in tech some of these companies have really done phenomenally well and we could take some money off the table there and re-invest there in other areas that I mentioned.
That is more a portfolio management decision than trying to reflect our view in terms of where we are bullish in the market cycle. So, we will continue to remain invested in the leaders. We may trim it here or there but as I said, there are opportunities in every sector and frankly. I do not want to single out and we will look at opportunities where we think that at the margin, it looks like many of the largecaps might do well in the runup to the elections and maybe the mid and smallcaps can join the party back couple of months down the line, so that is quite possible.
Which are the largecap stocks you are particularly excited about for the next 12 to 18 months?
I would say cement, capital goods, banks would be the areas that I would look for in largecaps.
There are both largecap and midcaps cement stocks. There are regional cement stocks. Within banks there are private banks, PSU banks, regional banks, old PSU banks. Just narrow it down for us.
Well, right now large private banks, largecap cement stocks is how we would look at it and largecap auto as well.
In banks, don’t you think there is a challenge of positioning because I am yet to find a bear on HDFC Bank. The whole challenge with banks is that it is one of those spaces where everybody is fully invested or perhaps is benchmark committed.
Yes, they had a good run earlier. In the recovery of Covid, they had a great run. Also, they had the best time in 22-23 when all three NIMs, credit cost and credit growth were in their favour. And also the stocks were relatively over owned and since FIIs were absent from our market and they were consistently selling, there was also a technical reason why the banks did not do well.
I do not see them as the leader of the next bull market for sure, but will they participate and will there be a mean reversion in their returns, I certainly think so. Private financials, especially the lenders, were the leaders of the previous bull market. This time within financials, the non-lenders could be part of the leadership pack. So, exchanges, online brokers, market infrastructure players, asset management companies have a better chance of being leaders of the bull market but I just feel that given the underperformance of the large banks, you cannot have a new bull market and Nifty hitting new highs and these guys not participating.
