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00:00we're coming to you from the JP Morgan conference right here in Mumbai and who better than Sanjee
00:13Mukhim himself to kickstart the discussion on these very hectic two days up ahead thank you
00:18for having me thank you for having us so what's the agenda a lot of news flow and a lot of debate
00:25I guess what a time to have this conference it is you know and I was a bit hesitant to begin with
00:31because the market's been lackluster let's say it's been flat for a year but it's a massive vote
00:36of confidence this is the largest ever conference we've organized over 1300 delegates joining us
00:42the number of clients joining us is up more than 30% why we have a greater number of corporates
00:47the buzz is really strong and like I said that's a big vote of confidence investors saying that look
00:53we don't care about daily volatility all this noise that you that you're referring to but India does
00:59present that long-term opportunity and people's interests are a little bit more permanent that
01:03noise might otherwise end it good to hear that there is still excitement about it but you know
01:08it's kind of a juxtapose because on one hand you still have uncertainty on tariffs over the weekend
01:13you had all that h1b news coming out and then uh from today onwards gst 2.0 one of the biggest reforms
01:21in the last few years again kicks off so what are investors really feeling about India right now
01:28well if I roll this back to a few months call it late March to June period there was a sense of
01:35despondence in conversations that have we were having with investors oh nothing's happening and
01:40it's all looking very gloomy and the corporate sector were sort of echoing that as well that has
01:46improved to my mind and the setup for a bounce in Indian equities looks very very strong to me
01:53and I want to take a few reasons for this our earnings expectations have already been cut quite a bit
02:00actually typically earnings are cut in the later part of a fiscal year but we've done it ahead of time
02:04this year because of that sense of despondence that I was talking about on valuations stuff looks very
02:10expensive or an absolute basis but relative to global equities we are now at a better position so
02:17if let's I've written research on this many times the India valuations tend to track SNP more than they
02:23track EN okay historically the charts are the same the SNP PE and ours is the same now we are like a 10%
02:29discount to the SNP so you've got right-sized earnings expectations you're trading at a discount to global
02:34equity valuations and you have potential domestic catalyst which is the GST you referred to now you
02:41may not get a great September quarter out of it because people held up purchases in anticipation but
02:46the December quarter could turn out to be better so with that a little bit of a bounce in the market
02:52does look like a recent possibility to us now what are the kind of you know questions that investors are
02:56now asking you in that sense you spoke about earnings you because we went for a early earnings cut
03:02normally it happens in second half but we and now I think most of the uh street is now looking at
03:09fs27 earnings and not 26 because they were almost written off f26 in that sense so what are they
03:15looking at in terms of valuation when you speak when you're telling us you know that we are mapping
03:20ourselves to S&P 500 price to earnings uh and we are at the discount to that so how are how are we
03:26looking at uh and how global funds looking into it first as a word of caution we should not dismiss f526
03:32quantitative correlations suggest that stock prices respond to 12 month forward eps not let's
03:39say the next fiscal but 12 month forward still relies on some outcome in f526 there's still six months to
03:44go really right so quantitatively the f526 number still matters and in another sense if you cut your
03:49f526 further you will be forced to cut f527 as well right because people did to track these in terms of
03:55growth basis so I do think that the f526 outcome is still relevant to stock performance so I
04:00I personally wouldn't you know ignore them and look forward so if I am now able to beat or even beat
04:06the f526 numbers that will be a vote of confidence in my corporate earnings outlook but to your earlier
04:12question of what people are asking about predominantly it is what or which sector can have proper response
04:20to price cuts right because you've seen the initial reaction to stock prices several sectors have
04:25already caught up what next some sectors do I still chase where do I get real world impact
04:34on volumes for companies or what's the elasticity really to price cuts for my companies and that's
04:40the discussion that's the groundwork everybody's trying to do to stay on top of your channel checks to
04:44stay on top of these micro trends in the industry to see which sectors stroke companies will now
04:51really start to deliver better outcomes so where is that room for expansion in terms of volumes because
04:58if you just go by what the market is doing right now it seems like everyone's just going to make a
05:03dash to two wheelers well the discretionary uh as a broader sort of category does intuitively have greater
05:10elasticity to price cuts right more than let's say staples and probably far more than commodities
05:16and we i agree with the market is also reasonably rational now whether it is two-wheelers whether
05:20it is entry-level cars that's the debate we will have now but a discretionary cohort is conceptually
05:27more uh let's say or stands to gain more from the price cuts that we expect will happen how is the
05:34foreign investors now looking at they expected a correction in the valuation to come back into the market
05:39and that's not coming the relative valuations have gotten better and that's the point i was making
05:44because global equities have gone up our valuations do not look as bad as they did
05:49and more important is if you now split it into sectors right let's take the financials cohort
05:54our banks even in a slowing economy will still deliver a certain degree of earnings growth
05:59with a high degree of confidence for the next three years but look at what's happened to global
06:03financial multiples all global banks have been on a secular rally this year and if you look at
06:09india financials premium to global financials actually come off quite a bit right so in contrast
06:14to what's happening the rest of the world our valuations do not look as prohibitive as they were
06:19let's say early 2024 will that lead to money coming in again it needs a spark i would argue so now when
06:26you have the rest of em rest of asia doing so well and people are engaged more in looking for
06:32opportunities in markets which have momentum at the moment there is no real impulse immediately so if the
06:38first precondition would be for the rest of em or rest of asia to lose some momentum before
06:43i mean the focus shifts back to india we've seen momentum going into china uh you know taiwan vietnam
06:50and korea and korea uh but is there going to be a reversal from those countries uh to come back i
06:56i wish i could be so precise to be honest i would be sitting here uh so also you know my question is
07:04also with respect to tech and that's a theme uh which has come over the weekend you know the tech has
07:11been slow uh since last september uh discretion is falling off then you know uh trump coming in tariff wars
07:19you know multiple headwinds for this sector and the final one coming in with the visa how do you see the
07:25tech sector as a whole i think the development of the weekend is still evolving and we'll figure out
07:32exactly the details of it and be how companies respond to it uh maybe some on-shoring is possible
07:37but like i said we do not have enough information here to take a very hard view on this outcome but
07:43let me make a slightly broader comment see what's happening globally is that the whole trade structure
07:48the integrated supply chain is now being dismantled to a degree countries that relied on export or that
07:55trade will lose drivers of growth and growth globally will become more scarce over the next
08:01period few years right india is a country which actually has endogenous growth drivers even though
08:07my growth will likely slow because my linkage to the world is not zero i still have exports and those
08:13exports will likely cover the fresher but i am not entirely reliant on it i still have a lot of
08:18very strong domestic growth drivers so the alpha on growth in india structurally for the next three
08:24years will actually improve because countries which are more dependent on exports will actually run out
08:28of steam faster so on a relative basis india will be one of the few large economies which will still have
08:33some visible growth over the next three years so as an investor if you were to make a portfolio fresh
08:40based on this premise about you know the domestic story being so strong on india and lesser reliance
08:45on export oriented economies what should be my biggest sector overweights and underweights
08:52so let me answer that question two ways right uh if you're a three to five year investor you look
08:56for compounding growth so the growth expectations will need to be watered down a little bit right one
09:02because the economy itself is a little bit slower uh just take the stark contrast in nominal gdp growth it was
09:07north of 20 fi 23 it's now probably going to be eight percent and there isn't an in there isn't a
09:13view that this eight is going to 12 very early in a rush it probably goes to nine or ten over the next
09:17three years but we are in a more subdued economic growth activity which will therefore dampen the
09:22earnings growth and therefore possibly equity returns the other argument we make is that shorter
09:27term returns are made on earnings surprises not growth we've done a lot of quant work on this and if
09:33you're an investor for 12 months or less you are looking for companies that are going to beat
09:37expectations of growth right now that appears difficult as well because yes things have gotten
09:45right size on the forecast but do i have enough momentum for a large set of companies to surprise
09:50your earnings i don't see that yet so my suggestion is it is still a better asset to own in the india
09:57context especially given the tax structure that we have locally but do not expect a high double
10:03digit compounding return from an india equity portfolio over the next three years you if i make
10:09nine percent in equities in an index etf i should be happy with it it's a good return and what should
10:14my sector composition be so we prefer financials on that like i said because there is a high confidence
10:20of even let's say subdued growth relative to history and i'm getting these stocks at a much better
10:25valuations relative to what financials are trading elsewhere in the world we like the consumer space
10:30we've talked a lot about it so far uh because there isn't enough of a stimulus couple of sectors
10:36we like on the side is uh we like real estate we like power we like the defense stocks so we have
10:41those idiosyncratic bottom-up picks as well but on a core basis of financial stroke consumer consumer
10:47discretionary makes a lot of sense sanjay uh a lot of new money has not come into the secondary market
10:52but new paper which is coming whether it's ipo whether it's block deals or pe exists everything
10:58do you see this trend to continue in this year as well it must uh because that is the function of
11:03market because that's not bringing the momentum in the secondary market it's just absorbing the
11:08liquidity and then uh you know the momentum that needs uh why should we it is not an imperative
11:15right the function of the equity market is to take savings and provide it to corporates who will use
11:20those savings to grow assets right and the equity market is discharging its function because there
11:24is money coming into the mutual funds or through retail and it is being transferred to corporates
11:29through all these listings and ipos now now some of it is our exits but again that's recycling of
11:34capital so what is happening is exactly what the market is designed to do and as long as there is
11:40supply of money there will be a demand of money if the market has to balance out market function where
11:46trading where the fi volumes come in uh in the secondary market as a trading volume that's
11:51something which is much lower uh today compared to maybe a year or two back right in that sense
11:56again if you step back and again we return research on this on a daily basis the flows net flows are zero
12:01right there's as many buyers as many sellers right why does the market go up or down it's on the impulse
12:06of the buyer if the buyer is more aggressive the market goes up if the seller is more aggressive
12:09the market goes down so i think a lot or too much of an excessive focus is is put on this flow analysis
12:18uh if i may be a bit harsh that's like chasing your tail right we cannot invest on the anticipation
12:25of flows we have to invest slightly more fundamentally and like i said the india looks it's much better in
12:31the context of where global equities are today and how does this change your coverage platform because
12:35uh mca india you know few years back had 80 stocks now 180 160 stocks the expansion of stocks which
12:42are coming in foreigners now looking at more alpha in many new stocks which is there how does it change
12:48your how as a brokerage uh how does you how do you look at that actually well thank you for the question
12:54gives me an opportunity to plug myself a little bit right because jp monger has invested a lot in its
13:00equity franchise in india a few years ago we were covering somewhere around 125 over 30 stocks i'm
13:06within short of being 190 stocks uh now uh because the impulse is right the market is growing the
13:12expansion of liquidity is durable it's here to stay and it is imperative upon me as a brokerage to say
13:17competitive we are if i if i remember my number right top three foreign broking house in terms of
13:23stocks covered now uh and there is a clear emphasis from all the senior management at jp morgan
13:29to continue to stay invested in india to grow our investments and increase our footprints in the
13:33economy and india will always be a stock picker's market anyway right again to be very harsh india
13:41used to trade three billion a day in 2019 even though the market's soft now i'm still trading 12
13:46million a day there's 200 odd stocks which have fno a lot of liquidity a lot of hedge fund interest
13:51so things have structurally changed the economy will go up it'll go down the market will be flat and
13:55they're not flat but there is a structural change in the size of the equity market and it is imperative
14:01for us as participants to respond to it but for this fiscal year you're expecting new highs right
14:07better than the previous high logically it should go up every year to be honest our target is 26 500
14:14and over next 12 months next six to nine months and you will have short-term uh peaks coming in uh
14:20uh volatility uh do you use because you have couple of events coming in india u.s trade and others
14:27there's other resolutions that comes in that is that going to bring in some kind of uh you know
14:32impulse into the market as you say i do think markets tend to be reverting so the premise might
14:38prove to be correct but again it's impossible to be precise okay so on that moment we let you go
14:43thanks for your time thank you great being here thank you
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