Indian market is underperforming global and EM markets partly as we digest near term impact of US tariffs and partly because we haven’t yet got out of the earnings disappointments cycle. Once earnings start outperforming expectations, sentiment will improve.
Consumption is clearly the theme of the moment – however one should recognize that market has already discounted perhaps 70-80% of the upside for many of these stocks. From here, one needs to be very selective.
FMCG was the big winner in consumption theme 2 decades ago. Consumer discretionary was the big winner over the last decade. The next decade will likely belong to convenience led consumption including food/grocery delivery and models that offer similar convenience across product categories.
While industrials and infrastructure may see a slowdown compared to earlier years, some pockets remain vibrant including defense, EMS etc.
This is a market phase where identifying niches may be a lot more rewarding compared to playing broader narratives.
NBFCs that can manage asset quality and IT services look interesting now from a delta change perspective.
Capital market companies also look interesting – one needs to however be careful on valuations.
When looking at valuations of large vs mid vs small caps, more than PE, it makes sense to look at forward PEG. Midcaps may look expensive on PE compared to large caps, but on PEG basis, the gap is much narrower, as earnings growth prospects in midcaps are better.
HSBC Midcap Fund continues to maintain its top quartile ranking as Cheenu navigates the portfolio into specific niches with strong earnings growth prospects.
Taking profits in real estate companies and deploying into select NBFCs has worked out well for the fund. Likewise, focus on convenience led consumption businesses over FMCG has also contributed to alpha.