Back in 2012 when oil prices spiked above $100 –coincidentally due to sanctions on Iran – our macros were very weak: CAD was above 3% (vs 1% today), fiscal deficit was above 6% (vs 4.6% today) and inflation was above 9% (vs 3% today). Our macro position is strong enough to handle this oil price spike.
Moderate inflation is actually good for nominal GDP growth and earnings growth – hence good for markets.
If oil settles in the $85-95 range and inflation settles around 4-5%, that’s bullish for markets.
Hiten believes we are in a bull cycle, bull markets are born amidst worries. Focus on long term structural growth themes and on large companies / leaders in each space as size brings resilience which is critical in uncertain times.
FY27 should be much better for markets than FY26 – and actively managed large cap funds are an ideal way to harness this market’s potential.
Hiten has created three segments in the Invesco India Large Cap Fund – value plays (10-30% of portfolio), compounders and growth plays (the largest component).
IT services are part of the value plays in the portfolio– they are available at utility-like valuations today. Fears around terminal value are overblown as they are not product companies whose products become obsolete – they are service providers who will align themselves with AI product players and drive implementation.
Large banks form the core of the compounders segment in the portfolio – their book value is compounding at 14-17%, NPA cycle is favourable, credit growth is picking up, valuations are attractive. If interest rates go up, margins expand for large banks – which is another positive.
That said, Hiten is underweight banks vs benchmark while he is overweight financials as a whole. Capital market plays form an important part of the 3rd segment – the growth plays of this portfolio.
In addition to financialization (capital markets and insurance stocks), two other key themes in the growth segment include EMS and energy transition.
The growth segment of the fund also includes select consumer discretionary stocks and healthcare services (hospitals) stocks.