We are still in a wait-and-watch mode but look at how much FIIs are selling India. We were looking at the data points. It has been quite an excruciating selloff. There has been five consecutive weeks of decline. It seems markets have digested both tariffs as well as earning softness back home.
Mihir Vora: I would not say the markets have completely digested it because the markets have gone down in spite of local buying. I would say the sentiment is a little bit cautious, it is optimistic but cautious. What has also happened is that we did see some dollar recovery in the sense that the dollar had been continuously weakening since February, and in the last couple of weeks, we did see some dollar strength.
It is more of a technical bounce, DXY is going from 96 to close to 100 but on Friday again, we saw that there was a correction. The dollar structurally continues to remain a weak currency. In general, as long as things are not too uncertain, we should continue to get money from FIIs into India barring these fluctuations. But the bigger issue is that certain domestic growth indicators are still not picking up to the extent that one would hope they will.
For example, banking credit is one of the biggest indicators and we are still at almost a high single digit kind of a number which is not sustainable or not compatible with the expectation of a 6.5% GDP growth. We do need some of those indicators to pick up to get the confidence that the current assumption that the second half will be better has to pan out.
Since the markets have not fully digested the overhangs we have, are we in store for some more consolidation or would it be the correct time to say that the markets have bottomed out and now we can head for some recovery?
Mihir Vora: I would not call either a top or a bottom at this point in time. I would take it a day at a time because there are a lot of moving parts and tariffs is one of them. Some of the macro indicators of growth, etc, need to be monitored closely. We need some improvement there. We should take it one day at a time. I am not very bullish or very bearish at this point in time.
You did flag off the credit growth concerns when it comes to banks and one has seen that play out pretty much across the board wherein there are cases of high provisioning pretty much for all banks right now. How do you dissect it within banks? While large ones need to be part of your core portfolio, what about the bottom-up approach, the smaller ones?
Mihir Vora: We are still sticking to the larger private sector banks though we have some exposure to PSUs, but not much. The call is that pricing power both on the asset side as well as the liability side tends to be a bit higher with the larger private sector banks. Of course, since they typically have a diversified portfolio, they may not be the fastest growing, but in terms of structural pricing power and liability management, the larger banks tend to be a bit stronger. As of now, we are sticking to the larger private sector banks.
The US has imposed a tentative 25% tariff rate on India as we still do not know what the final figure could be. Amid such uncertainty, how have you rejigged your portfolio? Where are your current overweights and underweights?
Mihir Vora: We have not really rejigged the portfolio based on the tariff situation because it is still a fluid situation and it is never over till it is over as with President Trump. Negotiations will go down to the wire, to the last day so to say. So, we are not taking big calls based on the tariff situation. But I would say that in the last few weeks, we have been mostly re-tweaking or readjusting the portfolio based on results. Based on results, we have reduced a bit of exposure to banking and IT where we were overweight to start with but have gone further overweight on the largecap IT stock based on the results. Most of the rejig has happened after looking at the results and the trends.