nifty: Krishna Sanghavi optimistic on infrastructure boom, sees long-term potential in commodity stocks

And within non-BFSI, I will possibly say non-BFSI, non-commodity as one space and the other core consumer segment of the economy.

So, the moment you remove BFSI, which is the lending piece and the commodities which is again one more raw material input for the basic economic activity, the rest piece is good. So, the broad picture around 15% odd earning growth is what we are seeing on this 380 odd companies of NSE 500 having declared results. BFSI is leading the pack.
That has been the story actually for the last maybe four-five quarters. The best earning growth has come from BFSI.
Around 22% earning growth from BFSI. The non-BFSI is in a way muted. But within non-BFSI if you segregate the commodity piece and then the non-BFSI, non-commodity is doing pretty good, nearly 20% earning growth. So, on the whole, yes, the result season is actually quite better vis-a-vis the muted expectations which were running ahead of the result season.
Like you mentioned, BFSI is a pack that has done pretty well for itself. Let us talk about commodities that have been a drag whether it is cement, whether it is infra, the earnings have been a drag. In fact, last quarter also, they were a major drag. Do you see the earnings improving? Is there some sort of re-rating happening in the sector anytime soon?
Krishna Sanghavi: The core story for the economy will remain the commodity companies because we are in the building phase for the economy in terms of capex creation, infra creation. So, to that extent, yes, clearly commodity companies whether it is cement, whether it is metal, they are going to play the role.

They do undergo a little bit for the size of balance sheet they run and the size of scale, maybe operating leverage, financial leverage, sometimes it hurts them in a quarter or two but the broad idea is yes, on a going basis our core thought process that India will start increasing its share of manufacturing and for that manufacturing piece to pick up we will need our own supply of metals, our own supply maybe of cement for infra creation. So, broadly that should play out is the sense.

When I take a look at your top holdings when it comes to the largecap space, I see Trent, that looks rather interesting to me in that portfolio because of the recent fall that Trent has seen post its earnings. Also, you have competition coming in from online platforms. You have Shein that has been making an entry. Trent has been suffering quite a bit. Even if you cannot get stock specific with us, give us a sense of what you are making of this entire online versus offline retail space and the competition that is heating up on that front and do you think something like a Trent or for example, a big box retailer like an Avenue Supermarts has more legs to the rally going ahead?
Krishna Sanghavi: So, the India economy, we need to split into one macro variable which is saying how organised industry is taking share away from unorganised industry, so that is a one piece. After that, possibly one gets into online versus offline. Clearly, online is far more organised. But within offline, there are large players which are as organised as what you can be. So, the big picture is clear. India is a consuming country, 140 crore population.
Each of this person in this consumption chain has their own requirement, whether it is apparel, whether it is staple, whether it is automobile, etc.

So, the retail space that way looks interesting space from a consumption perspective. And yes, this set of players can grab the market share of existing consumption from unorganised channel and more brands, better the flavour should be the reason to buy the stocks.

I need to get your perspective on the broader markets then. If you look at Nifty, the 12-month forward PE for Nifty is below 20 times. It is a five-year average. And if you look at the smallcaps and the midcaps, despite the correction they are still trading at a premium. Do you see more valuation comfort in largecaps right now and perhaps that would probably prompt a portfolio jig or an inclination towards the largecap names this year?
Krishna Sanghavi: Those broad trends of Nifty valuations being far more attractive vis-a-vis mid and small has been playing out for nearly last 9-12 months. It is not really surprising because we are coming back from last two years of reasonably strong outperformance by midcap and smallcap. And as we know quite a bit of those gains were led by valuations gains and not so much by earnings. So, to that extent, yes, the Nifty as a largecap index representative is trading reasonably valued vis-a-vis mid and small.

So, to that extent, incremental investing opportunity lies there. One challenge on largecap investing possibly is large amount of FII selling. While mid and small, to that extent has strong flows coming into support, so yes flows are right now favouring mid and small but valuation comfort lies with largecap.