What do you see in terms of the mid-cap, small-cap side of the market, especially in the PMS and HNI segment where you are constantly investing because of extreme buyback pressure?
First, we don’t see redemption yet. In fact, most conversations revolve around the topic of whether this is a good time to raise our awareness? Of course, different fund houses will have different experiences, but in general that is not the case and there is not as much pressure.
I don’t know what happened yesterday, maybe margin calls were made and this kind of sell-off happened. We would say that the capitulation phase may be close.
In terms of the mid cap and small cap market, is it a mix of PMS, HNI, retail and very low liquidity that you see in a sharper correction?
Yes, liquidity has definitely dried up and anyone forcing a sale in this kind of illiquid situation is causing a greater percentage of the decline. You just have to look at the charts to see the kind of declines that have happened, 40%, even 50% is not unheard of. So yes, we are going through a difficult phase in terms of small and mid caps.
What do you advise your customers now? For those with a certain amount of cash to bet would you ask them to sit on it and wait patiently as there will be better levels or would you suggest nibbling in the markets and if so what pockets ?
We are in favor of nibbling and actually post yesterday, it would make sense to do something more than nibble. An overhang on the macro is that the US housing market has yet to fall. Equity, bond and crypto are in trouble, but housing is still intact.
So in the coming months we will also see a decline on the housing side that will have its own impact on the rest of the world. That is a kind of overhang that we are wary of. That said, if we look at the bottom up in many of these small and mid caps, we can find some interesting value.
India is not as affected by inflation as the US, and to that extent even the stocks are much better positioned. Speaking of places to invest, banks and BFSI are interestingly balanced.
Many of the insurance companies have also corrected quite a bit and that would be an opportunity. Housing associations, home builders, they see opportunities there. Logistics and diagnostic companies have corrected quite a bit. So interesting value is created everywhere.
This is a time when you should be putting in capital for a two to three year prospect. You will get significant IRRs from this stage.
Are there any stocks that are being bought with high conviction right now?
No, our company policy does not allow us to talk about stocks.
Let’s talk about the sectors that you haven’t really highlighted, namely metals and FMCG. There is a clear sectoral churn going on. Could you suggest that the worst is over for the FMCG sector in terms of inflation problems, etc.?
Typically, FMCG companies are large caps. We don’t go there with much vigor. But yes, we may be peaking on different parameters. Food prices can also spike, metals have come off quite a bit and there’s kind of a spike that we’re seeing. The FMCG companies should take advantage of this.