What is your market view and where do you think we stand right now?
Amit Gupta: If you look at this way, we had made a previous base of around 18,000 when the Ukraine war started and the US banks were collapsing in February, March 2023. We made the final bottom around 18,000 and the market started moving up. That means we spent almost two to two-and-a-half years over there.
This particular consolidation started when in the 2024 general election, we did not see the expected quantum of votes going to the ruling party and the capex story got derailed last year from June onwards though the market made the top at around 26,000 later. Almost a year has passed since then. After the recent India-Pakistan conflict, the central government positioning looks much better and they have upfronted the capex.
I understand the March capex because we did not do that kind of capex in the beginning because of state elections. Last year, we had Rs 99,000 crore of capex; this financial year, we started with Rs 1,59,000 crore. That shows the intensity. It is getting frontloaded and that is why those sectors can start performing. Overall, market valuations are around 20 times now, considering FY27, because we closed at 1038.
If you consider 12% growth in earnings and then 10% growth in FY27, the number comes at around 1278. So, it is around 20 times. This is a fine balancing number. On some days, when the market will be under pressure, it can go down to 19, 19.5, but beyond that, we are not expecting the valuations to come down because a number of consumer names have entered in the index in the last four-five years and that is why it will remain in that particular zone and we have to be more stock, sector specific.
What is your view on valuations considering that everybody is saying that Indian markets are richly priced?
Amit Gupta: Compared to other markets, the Indian market is relatively higher. But we also need to understand that our weight in MSCI has increased to almost 18-19% and the dollar is weakening. So, support from foreign institutions can come to Indian markets. Along with this, we also understand that we were growing with 20% of earnings growth for two-three years, but now that growth is not coming. So, more consolidation is possible here. We can see the consolidation within 1,000, 2,000 points of the index.
There are certain heavyweights in the index which are attractively valued, which have not participated. It may be a time for them to support the market and the actual move will happen in the broader market. There are categories which are beneficiary of the FTA agreements which we are signing with the UK, and maybe with the EU. All these and the kind of deal happening with the US is going to have sector-specific impact. We feel markets will be consolidating more because next year, 12% earnings growth is expected. Within that range we should expect more move in the Nifty 50 stocks.
But I wanted to understand whether you have gone through what the Trent updates have been and how you are reading into the management’s weak commentary. Downgrades also are coming in. Do you sense that there will be some more EPS pressure?
Amit Gupta: I cannot be stock specific, but what I am seeing is that if the companies are growing at 35% for a particular period, the kind of things they do in the lifestyle business, what this company has done, a time comes when you do not go with the same kind of growth. If that growth comes down to 30% or 25%, it is still a better growth but your valuations moved much higher.
When you were growing at 35%, that means you were expecting that within two years, it will be doubled and when you are growing at 25%, you are expecting it to be doubled in three years. So, this one-year extension obviously will lead to the derating and the price to earning will start coming down as it consolidates. It will align itself with the market also. If you look at Nifty, which may also consolidate for one or two quarters and eventually will look more attractive, when we look at Trent or these kinds of stocks over the period, they will be relatively attractive.When some time has to be spent here, the market will understand that 25% growth is okay but in Bajaj Finance and those kinds of companies which were consolidating for long and growing much faster before, that did not happen any more.
Marico is saying that the India business volume growth has now reached multi-quarter highs and that core franchises, new businesses, rural growth is aiding their growth. Could one see similar commentary from the other rural focused FMCG players as well?
Amit Gupta: This is very interesting, because we had two years of negative rural growth and now we are bouncing back from there. There is always a mean reversion from such kinds of things. Now, we are seeing 0.8% of growth in the rural story. Some names will come on the surface because they have not participated for a long period. But if you are looking for a much higher growth, then you have to look beyond also, because there are certain disruptions that have happened on the consumer side.
With the emergence of aggregators or platform companies, it is a challenge to give that kind of volume growth which we are clearly seeing in the FMCG not coming. FMCG profit margins maybe 19%, but the volume growth is very low. So, it can pick up. A technical bounce can definitely come, but ultimately, we also need to understand that sales growth is going somewhere else. The platforms, internet, the use of internet, smartphones, are leading to that kind of change that companies need to understand.
So, there are more players, more products and maybe better pricing over there. The consumers have more options and this kind of disruption can’t be stopped. Now companies have to align themselves with these kinds of players and then the growth alignment can come.
But amidst this whole tariff war that we have seen with respect to the US and China, one of the other spaces where all the global economies were caught red-handed was over dependence on China with respect to the rare earth magnet issue. How do you see this particular shortage impacting the industries? In India there are so many companies wanting to explore this field. As an investor do you believe that there is any way that investors can play this theme?
Amit Gupta: Yes, the geopolitical crisis that is happening in the last two-three years is leading to the emergence of many sectors in Indian markets. It is not that it is always negative. When the Ukraine war started, we never thought of the chips which can be used in many sectors, in many applications. Finally, we started working on the PLI on semiconductors. We saw the move in those kindd of stocks even though the plants are not commissioned.
Rare earth is coming as that kind of opportunity. Most of the things are done in China. But if you look at the total mining fields, the reserves are almost 250 times higher than what is being mined now. We did not get into that maybe because of pollution issues also, but that is an opportunity now in India because India has 8% of global reserves in rare earth and we were more aligned with the light part of rare earth which may have a lesser magnetic field. The time has come to look at the rare earths with a strong magnetic field. So, heavy rare earths and that is where some companies are coming now.
We have already seen an announcement from a PSU. They have aligned 2,000 crores plus funds for this. Rare earth is used in EVs, electronics, defence. It is used in missiles and radars among others. We are pushing defence and electronics items for exports. So, it is a good opportunity. There are companies which are in copper mining also. Copper prices are again making new highs. If we combine this opportunity of critical minerals with copper, there will be opportunities in the market which are available at a better valuation as well. The market can consolidate, it can decline and we will find emerging sectors. That is how FY 26 has to be played.
Can one bet on copper as a commodity? What is your overall sense of the metal pack?
Amit Gupta: That was in deficit, We were expecting power demand. Earlier, the market was expecting a 9% increase in demand. It did not happen. It is around 6% right now because the monsoon also came before time. Eventually, when we are going more for artificial intelligence and data centres, we will see multiple times increase in power demand. That is where copper also comes in. Copper is used in wires and cables and that is where it can impact some of the segments like consumer durables, air conditioners where copper is used.
Obviously, the producers will be beneficiaries, the users may come under pressure. In India, air conditioners use copper compressors. There are players who are acting as vendors and manufacturing ACs for all the players. Our view is OEMs can remain under pressure because there is a continuous Japanese pressure. They are not able to get one-fourth of the market share also. The government has said that 1.4 crore ACs are sold in India every year. In the coming four years, we have to start exporting 1.4 crore ACs. So, there is another push in the consumer discretionary side after mobile phones that is going to come in the Indian market. So, opportunities are there.
