I guess the markets now have a continued wait and watch mode because the tariff deadlines have been shifted now to August 1st and we have not heard anything conclusive. While we understand that there is a mini trade deal which has already happened, but the big letter so to speak is still awaited.
Nitin Bhasin: You are right, market is stuck where along with flows and along with the macro indicators, we are just trying to find new direction where to go, perhaps tariffs is one thing. India has become a reasonably valued place where most of the stocks appear to be reasonably valued. So, hence everybody is looking for direction from what happens on the tariffs, you are right, because Indian earnings which we can discuss, but Indian earnings are not holding up so because of which people are looking for the tariff event how it plays out for us.
When you say Indian earnings are not holding up, are you talking about the earning season which we should anticipate and expect for the quarter gone by or are you talking about the things which have already transpired in the last in FY25?
Nitin Bhasin: So, FY25 is behind us and as we entered into FY26, in my last 10-15 years of tracking the Indian markets, we have never seen that we have started a fiscal year with 9% to 10% earnings growth for the Nifty expected for the next one year. We Indians have or most of the sell side has the pension for estimating high amount of growth and then going through downgrades barring the period post COVID, but in FY26 we had earnings growth of 9% to 11%.
As of today, if I look at Nifty, the consensus estimates is more like 7-8% for FY26. Last quarter we have seen another perhaps 2.5-3% earnings downgrades primarily because of BFSI and some bit of healthcare. So, hence earnings are not giving the best visibility, but perhaps you could consider that as a contra signal also, some of the market players, that how low can it go but that is what I was meaning by when next one year earnings does not look like we are at a very exciting state of earning expectations.
So, if flows are strong, earnings are not great, and valuations are rich, what will happen to markets?
Nitin Bhasin: We will be maintaining this that India has a very big fundamental playing in its favour, which has been flows, whether it was retail flows, the earlier about a year, year-and-a-half back or so foreign flows, and now the flows from the other DIIs beyond MFs which is the EPFO flows and you can see that the mutual fund flows have been following the low returns from the mutual funds and the mutual fund flows have come off, not have decelerated, but at the same point in time the DIIs flows mainly from, you could say, the non-mutual fund institutions has actually been holding up. So, flows have been driving the market, keeping the valuations punchy and we see from the bottom in the last three months market despite earnings bouncing especially back in smallcap and midcaps. So, I would say a market which remains pretty much volatile, a market which remains sideways, but a stock picker market. Market moves very fast in the pockets which have underperformed the recent past. So, hence, when we are highlighting to our institutional investors, what we are highlighting to them is to maintain or reduce their underweight positions in IT, that has been our call for the last month, month-and-a-half.
Banks, we are expecting earnings estimates downgrades. Banks have done also very good in the last one year. So, it over banks was one of the calls. Stay in largecaps, stay Nifty, very well knowing that the last three months Nifty has not performed as good as what the smallcap or the midcap has performed.
What do you make of the Q1 update so far, especially for the FMCG staples side as well as the banking side as well because for staples, have this surprised you in any way because the stock reactions were actually quite good and also on the banking like you just highlighted that you are expecting the earnings downgrade or rather cuts coming in, but what is your take on Kotak Mahindra Bank, the stock is up today and I believe that is one of your sell ideas.
Nitin Bhasin: Yes, we have been sellers on Kotak for a while. I was speaking to the analyst and what stood out from Kotak results perhaps was the kind of specific credit categories in which they approached the growth, perhaps as a sector overall we are worried about that the deposit growth which has actually come up we are not getting a similar sort of a credit growth in the marketplace. Perhaps the pristine credit quality which most of the banks were seeking in the private sector is not available that much.
Post COVID a very good amount of credit rush that came through. Good quality of credit are not borrowing that much anymore, perhaps either their incomes have moved up or they are all cash rich like most of the corporates in India sitting on a Rs 5 trillion cash.
There is a demand for credit in the MSME, in the SME, or in the middle or the bottom of the pyramid. Are the banks geared for that, that is the key question. Some of the NBFCs may be doing good job over there, but the banks are finding themselves, the pristine quality credit of either private consumption or that matter corporate I would say.
Coming back to your question on the FMCG, clearly yes, GCPL update, perhaps some signs around the real wage growth, some readings around the freight index in the long distance for trucks in India is showing that there could be a small let us say a blip or an improvement in activity in the fortunes or the activity at the rural or the agri based economy and given the food inflation which has come off perhaps that shows positive impact in the real wages also.
So, looks good, FMCG and it in a market where flows are, as I mentioned in the beginning, the mutual fund flows are sort of decelerating, earning estimate outlooks especially from the banks are not looking that robust, people could be forming a view that it and FMCG, more defensive sectors, earnings are stable, no more cuts possible over there and hence the two sectors outperforming. it has been one of our recommendations, it could see no more cuts perhaps into this fiscal. So FMCG clearly something to watch out for, right now is this improvement, a beginning of a big trend, we have seen some false starts in the past, let us see how it builds up.
