Anshul Saigal, Founder, Saigal Capital, says if the current dispensation comes back, then there will be a mad rush to get back into the Indian market at whatever valuation. So, I am not a votary for taking money off the table just now. I think the individual investor who is knowledgeable and can concentrate capital will be at a far advantageous position than a diversified portfolio manager in terms of absolute returns.
What is your view on autos? We did a CIO poll; when I asked them about the overweight sectors, it was the sectors that the momentum is already into, which means PSU, industrials, defence, etc, and there was zero percent vote that came in for FMCG and auto. What could be the rationale for that and would you concur with that view?
Anshul Saigal: The reason for that is capital is scarce. One has to deploy capital as a professional fund manager in the most optimal manner and it is quite evident which sectors are going to do well in case the current dispensation comes back to power after 4th of June. And so, clearly, that segment of the market which for the better part of the last decade was the laggard and which has only just started showing some signs of tailwinds and where the markets expect tailwinds to actually catch pace going forward it is that segment of the market that excites fund managers most at this time and for the reason that they have scarce capital, they need to deploy it in most optimal opportunities. Autos, clearly, is a space which has been interesting. There has been volume tailwinds in certain segments of autos over the last, say, one to two years and that is likely to continue going forward. But the gap or the sort of significance of upside that remains in economy-related sectors, capital goods, manufacturing, also cyclicals in the form of financials which are trading at far reasonable valuations as compared to autos today. It will be investor interest which will concentrate in those segments much more than autos going forward, particularly given the big event that we have on 4th of June.We are almost through with this earnings season. Anything that stood out for you which you have perhaps added in your buy list or something which you have completely checked out of, did not like the results in the commentary, etc?
Anshul Saigal: This has been a very interesting results season and I have been on a whole host of calls in this season. What is quite evident is two or three trends. One is that capital goods companies, manufacturing companies are giving commentary that there is a significant strength ahead. Many of these companies are suggesting that in the next three years they will double revenues and this doubling of revenues is happening with volume growth. It is not just price growth that is leading to this sort of uptick in revenues over the coming few years, so clearly that space sees a lot of tailwind at this time and this sector, because of the weakness over the last decade, has become a very small part of the markets in terms of market capitalisation percentage, I think that that is a space where there will be opportunity.
I also have heard repeatedly in this season that the rural has bottomed out and the rural economy is seeing green shoots. Some companies have shown that in earnings growth, others have not yet shown that in earnings growth. But it is quite evident that commentary across the board has been positive on this space. Our assessment is that give it another one to two quarters and the rural economy will start taking tailwinds going forward.
Also, if the current establishment comes back, their stated objective of doubling rural incomes by 2x, taking incomes by 2x, that will mean that the rural economy should do very well going forward, so that is the space which should do well. And then finally, if we look at financials, in the last decade we saw financials which were retail-oriented see their earnings move up, asset quality improve, and as a result valuations move up as well, that trend has played out for the better part of the last decade.
Going forward, it is going to be corporate-related lenders which will see tailwinds in our judgment. It is here that we are seeing significant volume uptake expectation in the next four to five years and it is not back-ended, it is happening as we speak and so PSU banks, select housing finance companies, select NBFCs will see tailwinds in their earnings and that will reflect in valuation in the coming few quarters and years. So, these are three pockets where we find opportunity and having listened to many calls that opportunity seems to have been confirmed.
What is the best tactical trade ahead of elections could be because there is a part of the street which believes that we have made the top and perhaps there is going to be a lot of sideways move and profit booking at the end of the verdict come June 4th. What is your take as to what we should do ahead of elections?
Anshul Saigal: I have been a professional fund manager and now I am an individual investor and I can tell you having been on both sides that this market set up is highly skewed in favour of the individual investor. Why I say that is because if you look at the headline number on the markets, markets will look expensive, markets have also rallied a lot in the last one odd year, maybe since early last year, so say one-and-a half years and so fund managers who are portfolio managers, they need to buy stocks to ensure that they give upsides, yet maintain low volatility in their portfolios, which means that they will need to diversify a lot to ensure that something like that plays out. But this is not a market for diversification, this is a market which will remain narrow.
There will be money-making opportunities which will be stock-specific, sector-specific and so to make a material difference to your portfolio, you will need to be concentrated in those segments. There will be many segments which will consolidate as you rightly said but there will be certain segments where there will be a lot of money made. Now, let me give you some instances. If you just listen to some cable manufacturers’ calls in this quarter, the kind of body language that they are exhibiting, the kind of language that they are using for the opportunity ahead, I have not seen that in a long time in the past.
If you listen to some of the defence companies and the kind of detail they are giving in terms of the opportunity that exists for them, in various segments of their markets and how the export market is opening up for them where government is really holding their hand and taking them to the export market, ensuring that they get that market, the opportunity is just tremendous and while these stocks have rallied, but I do not think that we are at the fag end of this rally. We may be somewhere in the middle.
If you look at certain financials, say some housing finance companies which have not done so well over the last three-four years, even longer, since maybe the IL&FS crisis and are now trading at half-time’s book. There are stupendous sorts of special situations available in that segment. So, what I am trying to say is that this is a market where if you concentrate your capital, there are tremendous money-making opportunities. On the headline number, it may look like an expensive market and then bear in mind that FIIs have taken away money from this market over the last six to seven months and they are down by about $4 billion down to 11-year lows on their holdings of the Indian markets.
If the current dispensation comes back, then there will be a mad rush to get back into the Indian market at whatever valuation. So, I am not a votary for taking money off the table just now. I think the individual investor who is knowledgeable and can concentrate capital will be at a far advantageous position than a diversified portfolio manager in terms of absolute returns. Maybe not in terms of relative, I mean, for relative return reasons some fund managers may like to diversify, but for absolute return seekers this is quite an interesting market.
