HDFC Bank says the rural economy is on track and is coming back. The fear was that maybe rural India would not perform as well as it did last year. In 2020, companies grew on the back of the rural economy. Would many more pockets start looking more attractive now?
At the end of the day what is the driver of an economy? The most important factor for the economy to do well would be consumer sentiment because if their sentiment is positive, they will go out and buy. If they go out and buy, capacities will be filled. If capacities are filled, people will set up new capacities and that will spur further jobs. So the basic requirement for any sort of tailwind on the economy is for the consumer to do well.
After talking to various companies, we find that after seven to eight years, the consumer is coming back on track. If that happens, it will spur all sorts of activity from capital goods to rural consumption to real estate. So, in our view, this is a phase where the consumer is coming back and starting to purchase. If this is a sustainable trend, it will have a ripple effect on many sectors and the rural economy also should do well.
The fear this time was because of Covid spreading in the rural hinterland, there is going to be a demand impact there but clearly because of monsoons as also containment of Covid, now the vaccination pace has picked up quite meaningfully and the rural economy is back on track, that is very heartening to see.
The path to owning international equities, owning US stocks has gotten quite easy for Indian investors thanks to platforms. Kotak also has a platform that makes it simple for Indian investors to invest. Plus, one can invest as much as a quarter of a million US dollars through the LRS scheme. Are you advocating international exposure?
We always advocate asset allocation and in that context, there are various types of assets. In domestic currency terms, there is equities, debt, real estate etc. Another way to diversify the asset base is to invest in dollar assets. The preferred route is to invest through the platforms in global equities and to that extent for diversification of portfolio for asset allocation, it makes sense to be investing a part of the portfolio in these markets through the platforms.
As you mentioned, Kotak does have a platform which offers this opportunity as do others as well and investors could make use of that and take part in global equities through these platforms. Most of these are ETF of routes which many of these funds have taken and clearly for an investor who does not have the size as well as the inclination to research individual equities, the ETF route probably offers the best option to do this.
What could be the next trigger for the Indian equity markets?
Clearly this is not a market like March 2020 where one picked a stock and it could have doubled at the least. This is a more nuanced market and to make money in this market, one will have to do much more work than what one had to at that time.
The difference between value and current price is harder to find in this market. Rather than worry about the overall markets, if the overall tide is high, that is when all equities go up. If the tide goes down, all boats go down. In that context, markets are relevant but more than that it would serve a professional investor to focus more on bottom up opportunities that are not priced right in the market where the fundamentals are far better than what the market ascribed value for.
In that context, this is going to be a stockpickers’ market much more than a one-way — buy anything and let it rally — kind of a market. That is also good for the health of the markets because weaker hands find it tough to sustain in a market like this. We are in an earnings upgrade cycle and in these cycles, typically revenue growth takes care of almost everything — whether it is costs of inflation or other aspects. If revenue and volume growth are strong, that takes care of everything.
So for the next trigger of the market, one has to really worry about volume growth. If volume growth in the aggregate Indian corporate space is going to do well. it will be reflected positively and markets will look at that as an additional trigger.
