Fund Manager | Investment Strategy: ETMarkets Smart Talk: This fund manager inspired by Charlie Munger places his bet on economy favouring sectors

“We believe economy favoring sectors will continue to do well like capital goods, domestic consumption (especially discretionary), BFSI, Auto, etc. in the rest of this financial year,” says Aishvarya Dadheech, Fund Manager, Ambit Asset Management.

In an interview with ETMarkets, Dadheech, said: “In the current rally, sectors like deep cyclical, banks (private & PSU), capital goods, infrastructure and manufacturing have done well. Sectors with an export focus like IT, Pharma etc. remained under pressure,” Edited excerpts:

What a month (August) for Indian markets? Do you see fresh record highs in 2022?
With moderation in commodities prices from June 2022 onwards, the market expected inflation to have peaked. The market also extrapolated the US Fed cutting rate in 2023, as recent hikes may trigger a recession in the USA.

All this set the tone for the risk-on sentiments which pulled a strong rally in the equities market globally, including India.

Smart Talk

Indian market along with global risk-on got support from decent Q1FY23 results in August.

We believe the Indian market will continue to remain the best performing equity market globally in CY22 supported by a higher earnings growth trajectory and moderation in inflation expectations.

FIIs have also joined back which is giving further legs to the party on D-Street. Is it FoMo or attractive growth outlook which pushed FIIs back towards Indian markets?
FIIs changed their stance on India when commodities prices started cooling off and the fear of a steep hike by the US FED took a breather.

At the same time, India continued to exhibit stronger economic indicators and higher earnings growth in the context of the global growth slowdown.

Attractive valuations, steep moderation in commodities prices, and resilience of the rupee make India an attractive investment opportunity.

An aggressive rate hike by the Reserve Bank of India (RBI) is also giving comfort that a large part of the interest rate hike is done with, given the expectation of inflation moderation. All this led to a reversal in FII flows in India.

What about valuations? How are we placed when compared to other EM countries?
The Nifty50 is trading at 19.5 times forward P/E compared with a long-term average of 21. The market is fairly valued and is trading at close to a 1+standard deviation above the long-term average.

India is trading at a 100% premium to MSCI emerging market indices versus the long-term average of 85%. Overall, the Indian market is reasonably valued.

What is your view on telecom and allied stocks after the recent spectrum allocation?
Telecom companies committed Rs. 1502 billion for spectrum allocation, much higher than the street estimate. However, there will not be much strain on the cash flows of the telecom companies, as upfront payment is mere Rs 75 bn, as they have the option to pay in EMI over 20 years.

Added to that Spectrum Usage Charge (SUC) savings will reduce the annual installment burden by 35% -40% in the coming years. We believe this is a win-win situation for telecom companies and bode well for the long-term potential.

Domestic themes have done well if we look at the sectors which participated in the rally from 50,000-60,000. Do you see the trend in favour of economy favouring sectors to drive the next leg of the rally?
In the current rally, sectors like deep cyclical, banks (private & PSU), capital goods, infrastructure, and manufacturing have done well. Sectors with an export focus like IT, Pharma, etc. remained under pressure.

We believe economy favoring sectors will continue to do well like capital goods, domestic consumption (especially discretionary), BFSI, Auto etc. in the rest of this financial year.

Improving credit growth, strong capex recovery, resilient domestic consumption, and surplus monsoon will bode well for the economy favoring sectors.

From the 52-week low in June the trend reversed in quick time. What would you advise investors to do at current levels? Top up existing MFs, buy stocks that are trading at fair value or lighten up positions.
Successful alpha generation in the coming times will depend on the right selection of companies or sectors. We believe the most important attribute to positive alpha generation will be earning growth.

Good Earnings: Stay invested in companies that are bound to report good earnings growth and have long-term potential. Stay away from the weaker franchise and levered companies amid a rising interest rate environment.

Pricing Power: Stay invested in companies with pricing power in the current inflationary environment. In a nutshell, stay invested in Good & Clean companies.

Broader market is still far away from its peak. Does it make sense to catch the fallen knife? If the market rebounds, there are higher chances of some activity in the small & midcaps as well.
Since January 2018, Nifty Midcap 100 & BSE Small cap delivered cumulative 49% & 47% returns respectively compared with 72% of Nifty 50. The broader market has a lot to catch up for as they underperformed large parts of CY17, CY18 and CY19.

The broader market performs better when the economy turns around. The economy is showing good signs of improvement as reflected by high-frequency indicators like highest GST, positive growth in GDP, improving IIP, highest level of PMI, robust tax collection, surplus monsoon, adequate forex, and many more.

A strong economy will improve investor confidence which helps in capital rotation to midcap & small cap. The broader market also performs better when interest rates are stable.

The RBI has done a large part of a rate hike and it will bode well for the broader market.

Please share a little about yourself.
Equity investment and business valuations were areas of my interest and hence I started focusing on building my career in investment management. Post my studies, I started with a research role (equity+ credit) and then gradually moved into fund management.

I seek inspiration from the likes of Naval Ravikant, Anthony Bolton, and Charlie Munger. I have learned a lot from them in my 15 years journey of in investment management.

I believe in work-life balance, and I believe it is crucial to remain balanced and calm. Reading, travelling, playing lawn tennis, and spending time with my family are my ways to manage stress. Music and walking help a lot.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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