Yesterday was a volatile day for the markets. What is looking interesting to you right now? Are you looking for opportunities to buy the dips?
Gurmeet Chadha: There are a couple of things here. I do not think the correction has been that much in terms of price correction as much as it has been on sentiment. Nifty is down about 4% to 5% from the day these tariff news came, which can happen in normal course as well. So, we are asking clients that if they have liquidity, maybe a third of that, one-third of the cash they have, can go right now and the balance can take time because a lot of this is something beyond your control.
Personally speaking, this is more a hard negotiation tactic because the new tariff is technically a tariff embargo and it will come in only 21 days from now and in between, a team is coming. So, hopefully, these are hard negotiation tactics and in everyone’s interest, some solution will be reached. We are focusing on things which have very little linkage to the export side and the US side and the tariff side. So, we are focusing on some quality banks. For example, in ICICI Bank, NIM was steady. The weighted average reduction in lending rate is about 70 basis points, this is RBI data on 100 basis points repo cut and weighted average reduction in borrowing rate is 83-84 bps. So, after some lag, we will see NIM actually stabilising, which has been the case for banks. So, that should start doing well.
In credit growth, ICICI is leading with 14-15%, and gaining market share. We are also adding a mid-tier II bank, which is Federal Bank along with ICICI and HDFC in the portfolio. Adding some quality NBFCs as well, including Jio, which is more new age because the cost of fund impact is more immediately visible there. Then, we are adding some names in power equipment spaces, companies making transformers, power equipment, which is very secular. The order book is very steady. We are also nibbling into consumption stocks like InterGlobe, Trent and more. We are playing it in a way which is more domestic economy focused, where earnings are good and the outlook is likely to be better and we are getting some decent price points.
You have spoken about the sectors that look good right now and could prove to be a safety net given that they are domestic facing. But what about investors who do not have a significant position right now and are sitting on cash? Would this dip be as good as any to start allocating money or would you advise them to wait it out till we have some more clarity?
Gurmeet Chadha: Typically, cash and courage do not go hand in hand. Once you have cash, sometimes if the market falls, the courage gives in. There is a famous quote that every past correction was an opportunity, the current one is a risk. So, I would advise a staggered deployment. As I said, maybe 25-30% can go now and the balance over a few weeks when this thing plays out. For example, in Japan’s case, they almost had a deal and in the morning we saw an additional 15% tariff. So, it is an ever evolving situation and my sense is there will be more sanity after some time and the effective rates will be lower. So, stagger it up.
Also have some exposure to low hanging fruits like long duration bonds. Now, you are at about 6.30-6.40% on the 10-year and repo rate is 5.50%. Let us say we have another 25-50 bps in the next six months, you are talking of 50 to 80 basis points yields falling, which means you can make a double digit return in a long dated government bond.
Second, with this kind of leverage being used by the US, gold, central banks will start buying more gold. In terms of tomorrow, even US treasuries could be a point of leverage. So, if you have a very balanced asset allocation right now, some exposure to bonds, gold, selectively buying equity gradually, and more importantly, keeping expectations more sane. This is not a year where you will make 20%. If you are making high single digit, early double digit, you should be happy about it. That is how you have to approach this market and not become very aggressive, at the same time become too pessimistic.