Large corporate private banks have got rerated and NBFCs are catching up. A big Morgan Stanley upgrade has come on private sector banks. Is this the right way to play the capex game of fuelling the economy and the Street is rerating the market?
It goes without saying that the Budget has been extremely useful in kick-starting the entire momentum and it was practically coming down one week prior to that. A large portion of that remains with the announcements that came in the Budget. The bad bank theory has been talked about for quite some time. It helps every bank to not just clean up their balance sheet but also look to start a lending cycle which has been practically frozen for the last four to five years.
In order to kickstart the economy, the lending cycle has to be kickstarted and the precursor to that is for the banks and NBFCs to get their animal spirit back and start lending. They have to look at good credit and be a lot more diligent about giving out money. That is showing in the markets now. Our take is very clear. We are on the cusp of a mega bull run as far as Indian markets are concerned. A lot of the statements and actions that are to follow in the future will course a new path for India overall. The leader in this pack is Nifty and nearly 40% of the Nifty weightages is in BFSI space. It has to do well for the economy and the markets to do well and our take remains simple — both private banks and NBFCs will do well in the cycle to come.
Looking at this rally, do you think everything is in the price or is it a premature assessment of things which are taking shape?
Our take is clear. The markets have been depressed for the last four to five years. We have had midcap collapses from 2018 onwards. So we have not had great returns as far as capital markets are concerned. Whoever says that the present market is liquidity-led has been proven wrong. Our take is that we are on the cusp of something that will be a reflection of the 2003-2008 cycle that the market went through. A complete re-rating will happen.
We had looked at around 400 companies in the midcap and the large cap space. In nearly 80% of them, the bottom line has doubled although the top line has been frozen at some point. That means most of the promoters have tightened their belts, removed wasteful expenditure and have got ready for a rally which is going to be unprecedented as far as the markets are concerned. The reason I am saying unprecedented is because the top line has not grown that means that the demand side expectation has not come in as yet. That is exactly what the government has done. It has kickstarted the spending cycle and upfronted most of the expenditure to make sure that a growth-led momentum comes in from the infra space. There has been a 35% increase in allocations into the infra space.That will also have a trickle down effect into all segments which are consumer led. It has been an extremely useful Budget that way.
Secondly, the Budget has allowed growth to be the single point focus and that is exactly what the markets needed. The markets needed a booster dose after nearly six quarters of depression as far as earnings and growth was concerned. The Budget will end up changing the way the economy has been doing over the last two or three years.
We are seeing just the start of the mega bull rally. We are in a very sweet spot and a lot of money is going to come into India. Most of our institutional investors have started looking at India with a different lens. All the reforms that the government has looked at for the last six-seven years will end up having a slow offtake and finally a re-rating of our economy is going to happen over the next four to five years.
Do you think a time is coming when FIIs and DIIs both would turn buyers?
A good analyst turns with the tide. In my last two or three interviews, I have been a very strong bear because of the simple fact that I did not see a road ahead which was not fraught with danger. That has finally changed because of policies and not because of any tinkering that would end up spooking the markets.
Ride the rally of India which is going to start off, remain invested in the markets. The next six months to a year, the large midcaps and large caps will make sure that whatever money that they have conserved, will be spent in growing the businesses. By the time the credit cycle opens up and the risk appetite of the banks, NBFCs to lend into the midcap and the SME and MSME space comes in, the roaring bull run will start.
You will have nominal returns over the next one year, but post that when the entire broad-based rally of midcaps and smallcaps start off, India will see an unprecedented run. So be invested. It is the time to invest in India and there is no valuation metrics that you can look at.
We have usually discounted for the future. This time we are saying that we are discounting it at a rate which we believe is possible because the figures that have been put forward have been as transparent as possible in any Budget that has come out in India till date. The government has up-fronted the expenditure, taken revenues at a lesser level and if growth comes in, most of the projections that they have given will be overshot. The single line message is you should be invested. You might start with the large ones but move into midcaps and start building up portfolios in the next one year plus.
