Vikas Khemani, Founder, Carnelian Asset Management, believes India's strong economic fundamentals position it as a top-performing market for years. He emphasizes the significance of the RBI governor's actions, particularly liquidity management and interest rate reductions, over global factors. Khemani anticipates improved corporate earnings in the second half of the year, focusing on quality management and businesses with high compounding potential.
So much noise around tariffs and earnings. What are you focusing on particularly to figure out which direction the market is likely to take from here?
Vikas Khemani: There has never been a time when there is no noise in the market. The market by design always has some noise. So, as an investor you just stay focused on the core fundamentals and according to me, India is one of the best performing markets and best performing economies, and is likely to remain so for many, many years to come. If that is the case, you have to navigate these kinds of flows.
Coming to the shorter-term approach, what our RBI governor is doing is far more important than what Trump is doing and clearly in last six-eight months he has not only taken away the liquidity squeeze, there is enough liquidity surplus, and he has brought down the interest rates by 100 basis points, and so removed the thing that caused corporate earnings to slow down last year.
I do believe that the second half of this year would be far better in terms of corporate earnings. Q2-Q3 onwards, we will start seeing significant traction. In some sense, the big risk as far as corporate India is concerned is earnings growth. You can always make an argument of India being expensive but we do not think India is expensive given its growth profile and the fact that interest rates have come down. So, yes, we are focusing on identifying great quality management, and good which we like, which can compound at a superior rate over the years. That is the focus for us and we continue to remain on that.
Where could the tariff negotiations with the US head to and what number could the Street be happy with? Do you think it could be anywhere between 15% and 20%, given that we are tentatively at the 26% mark as of now? Where could the negotiations go and is there any number the Street could be happy with?
Vikas Khemani: I wish I had view and access to that kind of information, but the only thing I know is that as long as our tariffs are equal to or below China or competing nations, we should be okay. It should not be disadvantageous to India to be compared to other competing nations which is likely to be the case.
So, if that is the case, I do not think we should worry too much. Our government is doing a great job in terms of navigating this whole thing in a mature way. And these things do take time and I do believe that very high likely, I would say, very high probability that outcome will be favourable. Now, it does not matter whether it is 15% or 20%.
As long as India tariffs are lower than competent, it is fine and more importantly it is not that US can live without India or India can live without US, both have to coexist and I am sure both nations realise that. Apart from political theatrics, the negotiations get down to the realities and I am sure they will play out in times to come and that is how I see it. Meanwhile, I do not see any disruption and if at all it comes out, I am sure it will be short lived and it will be addressed.
You raised a very important point that more than what is happening around the world, what the central bank has been doing is important. A big bazooka 50 bps cut they announced last policy. Tell me where do you see the impact of that trickling in and does it make the entire BFSI segment even dearer?
Vikas Khemani: It is not like that. See, two things happen. One, when interest rates come down, your overall discounting rate that you apply to asset class valuations also goes down and as a result of that, valuations go higher and that is applied across the board – be it banking or any other equity. So, asset class re-rating happens whenever interest rates go down.
Secondly, you have a positive impact on the corporate earnings and obviously competitiveness also increases demand in the system because things become affordable. So, it is typically positive in a structural sense and that is likely to pay out. Now, some sectors might benefit in the short-term, some might not benefit, but that is fine. We have been very positive on BFSI for the last six-eight months and we have been significantly overweight and we have benefited from that and that is likely to to pay out. Now, some sectors might benefit in the short-term, some might not benefit, but that is fine. We have been very positive on BFSI for the last six-eight months and we have been significantly overweight and we have benefited from that and that is likely to continue for some time. Any other interest rate sensitive sector would do well.
Source Name : Economic Times