ET Now: Give us a sense of the way the market has moved over the course of the week and everything that has been happening across the border. Give us a sense of the fundamental impact that you are seeing and we have seen a bunch of stocks like certain sectors have been able to come out unscathed of this, case in point being PSU banks also in trade was largely doing pretty okay. But on that note, I want to get a sense of the PSU basket itself, banks and otherwise because every time we have seen something like this happening when we have a national security threat, it is the public sector undertakings that come into immediate line of fire. This is something that we have seen over the course of time in the markets. Give us a sense of what you are making of the entire PSU space, could be defence, could be banks. What is your take?
Mayuresh Joshi: First of all, I would say kudos to the Indian army for backing off Pakistan quite significantly, so Jai Hind for it and we hope that we succeed in whatever objectives we have put out from a government directive perspective.
Having said that, if you probably look at historical evidences, on all previous conflicts that have probably happened, the pain does not seem to last long because the markets move along, unless there is huge escalation which probably we have not seen in the recent past and therefore, I do not believe that this will turn out to be a huge escalation as we speak. There will be some element of sanity returning over the next few days, next few weeks, and therefore, the reaction that the markets have given is very-very mature in my opinion.
And the reaction is based on two counts. One, obviously in terms of geopolitical news which the markets believe should get resolved and the second element in terms of both macros and micros. From a macro perspective, crude prices are lower which means the trade deficit is lower. The government capex is continuing at a full throttle. Liquidity is abundant in the system.
The expectations of tax collection remain extremely strong and therefore, we are maintaining our fiscal glide path seems to be the best case scenario as we head into the next financial year. Having said that, with consumption expected to take a huge boost from the tax cuts on the urban side, with better monsoons expected to boost consumption on the rural side.
The micro picture in terms of corporate returnings should start improving in Q2 and significantly in the second half which probably then makes us believe that outside India there are very few economies which have a very strong macro and a micro built up that is probably happening. The only couple of risk factors that play out this scenario, not just for the Indian markets, globally is that over the next 60-65 days as that 90-day window probably gets over, what happens in terms of tariff negotiations ex-China and with China as well and what do we finally settle down at. And in the second perspective looking at the first perspective, what kind of an impact does that have on growth, inflation dynamics, and the rate cut cycle which will largely be determined globally in terms of how global GDP growth pans out.
So, if you put everything in context, my own sense is that India is better placed than most of the economies across the globe. Even China is probably expected to struggle as far as it is (10:49) economic indicators are concerned and therefore, we remain optimistic on the Indian market. Our own sense is that India probably remains the best placed markets outside the US.
ET Now: Let us talk about earnings then. The earnings so far have not been as bad as the street was pencilling in earlier. Remember, there was a lot of pessimism about the quarter four earnings season when we were talking about this a few weeks ago before the earnings season had kicked off. What are you making of this earning season now, now that we are a little more than halfway into it. Give us your sense on what you are making of this earning season because especially for FMCG as a sector that we have seen multiple beats versus expectations. It is a sector we were not expecting to do well at all and we have had multiple such surprises across sectors. So, what is your view on the quarter four earning season so far?
Mayuresh Joshi: It has been reasonable to be honest and therefore, our take in terms of earnings expected to bottom out by Q2 and show significant improvement across the length and breadth of the universe, should probably start out as consumption trends come back very-very strongly. Having said that, for Q4 in particular, BFSI have posted a very strong set of numbers generally across the pack. Insurance players have done a good set of numbers as well. The banking companies have done good numbers and have the NBFCs as well. So BFSI as a space has done reasonably well.
The expectations with FMCG was always soft and muted and therefore it is in line with what the street was probably believing. But again, the entire thrust is with consumption expected to come back strongly, these companies should start reporting better numbers both from a volume and a price perspective giving them the leverage. Out of the companies in play, Marico out of FMCG companies was a standout performer as far as overall numbers are concerned.
When it comes to IT, again the softness was largely expected. There were a few outliers like Mphasis, like a Coforge, like Persistent within the midcap IT pack and therefore the hope in terms of discretionary spending coming back, tariff resolutions expected to happen, and demand slowly and steadily kicking in for BFSI, retail, manufacturing for North America and Europe clearly hinges on the fact that second half earnings might start coming back for IT companies and specifically for these midcap IT companies which have probably delivered as we speak and given better earnings outlook.
Generally, for agrochemicals, a good set of numbers again and I think that spree in terms of earnings momentum might very well continue with expectations of better monsoons coming through and therefore, a large universe within the agrochemical pack have delivered decent set of numbers. Coromandel was a standout within that pack as well.
Now, when it comes to the other consumption-driven items, whether it is consumption discretionary as we speak, alco-beverages have delivered a very good show so whether it is Radico or UBL have delivered good set of numbers and the FTA that you were just speaking about, I think there will be some implied benefits that can come through for this sector as well. Last but not the least, the expectations in terms of power as a sector was always supposed to be a little bit muted.
PSU banks selectively did well, selectively disappointed, but there is valuation comfort there as well and capital goods selectively did well, but the general consensus again here was that it might be a quarter where recovery will start playing out and probably Q2 onwards the recovery will be full blown. So, these set of numbers so far are reasonably placed as far as India Inc is concerned. Q2, it should be out and second half I think we should see earnings recover.
ET Now: Give us a sense on what you are making of the pharma pack because we hear that Trump could be announcing pharma tariffs soon, at least that is what he is claiming that is his course of action when it comes to pharma. How bad do you think if at all, because we have had this initial round of shock a little bit coming in for autos and pharma and would you believe that that has been digested well enough now or do you believe we are back in for round two of a shock coming in now that fresh tariffs are expected to be announced for pharma?
Mayuresh Joshi: …there might be a knee-jerk reaction, but it is not going to be because if you probably look at the construct, you hear the Eli Lilly management out and they have clearly pointed out that if you want to probably set up a new facility, it might just take a long periodicity of time and the cost of producing drugs, a single drug, a speciality drug might actually exceed in billions of dollars. So, US does not have the flexibility both in terms of time and cost and therefore whatever claims are made, it is just not going to.
Having said that, a lot of the leadership pharma stocks have created a signification pipeline in terms of speciality drugs and therefore NDAs that they have filed, the FTFs they have filed, the speciality NDAs that they have probably filed with phase 2, phase 3 trials continuing for a whole host of pharma companies, the expectation here is that the kind of systems and processes we follow, you have obviously got FDA audits for a whole host of pharma companies, on top of that the expectations in terms of time and delivery that these companies are probably making for the US consumers and the rest of the globe as well are very-very effective and therefore, leadership stocks within the pharma space should continue doing well. They have invested significantly in capacities and therefore the R&D spends should plateau out as we speak and therefore, there should be some element of consistency and saliency in terms of operating margins. So, certain stocks like the Sun Pharma and the Cipla is something that we continue holding in our global portfolio.