These are edited excerpts from the interview.
Q: What brings you to India, and what’s the key agenda?A: I am meeting companies and also took a short break in Rajasthan. The weaker rupee helps. Broadly, I’m here to get an update on the market.
Watch the full conversation here
Q: What is the current sense on markets?
A: People are reasonably optimistic, but the global backdrop is not conducive. External factors are a concern—oil above $100 per barrel, sticky US Treasury yields near 4.5%, mortgage rates above 6%, and ongoing geopolitical noise. These factors are pressuring markets. Earlier, we spoke about earnings needing to inflect, foreign institutional investors (FIIs) selling due to better opportunities elsewhere, and India being seen as an artificial intelligence (AI) laggard. Those concerns have compounded with oil and rupee pressure.
Q: What explains the sharp rupee recovery and market move? Any connection?
A: It’s hard to pinpoint. There may have been Reserve Bank of India (RBI) intervention to backstop the rupee. Currency markets can overshoot, with traders piling in and then unwinding. That could explain the move. Long-only investors typically don’t hedge equity exposure—indices like Morgan Stanley Capital International (MSCI) or Financial Times Stock Exchange (FTSE) are unhedged. Hedging is more common in hedge funds or fixed-income strategies.
Q: Was this a flow-driven move?
A: Not necessarily. A stronger rupee usually reflects stronger flows, but this seemed more like the RBI pushing back against speculative positioning and setting a floor.
Also Read | Markets price out worst-case risk, but energy to stay higher for longer: Matt OrtonQ: What is your view on IT after recent underperformance?
A: Not in the very near term, but structurally, IT services will adapt. It’s unlikely that software will become entirely in-house via AI. Smaller, nimble companies offering engineering services should do well. Valuations are supportive, growth has been weak but should inflect positively. Much of the downside is already priced in.
Q: Any other sectors that look attractive?
A: Financials, especially private banks, look attractive after the sell-off. HDFC Bank offers a strong deposit franchise at reasonable valuations. Travel and aviation look interesting—MakeMyTrip (ADR), Indigoand airport plays like GMR. Infrastructure names like Larsen & Toubro with Middle East exposure could benefit from future capex cycles.
Q: Has the recent volatility created entry opportunities?
A: Yes. Volatility has created opportunities, especially in large caps. Earlier, we reduced exposure to small and midcaps due to stretched valuations. Now, large caps look more compelling.
Q: Has your India allocation changed?
A: Yes, it has declined to around 10% of the portfolio. This is due to both reducing mid/small cap exposure and the impact of rupee and equity depreciation in dollar terms.
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Q: After heavy FII selling, is it time for flows to return?
A: Valuations are more reasonable, but I don’t see a clear catalyst yet. India needs stronger domestic drivers—especially capex. Gross domestic product (GDP) growth is moderating, and global growth is slowing. However, if inflation supports nominal GDP growth (about 9%), that could still support corporate earnings. There is a silver lining.
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