Where do you stand on that argument that Indian midcap and smallcaps are way expensive right now and it is the largecap which have more value? What are your thoughts there?
Christy Mathai: Clearly if you were to look at how the small and midcap index have done post COVID, it has done phenomenally well and especially last year. Last year, it was a combination of earnings growth plus the flows which came in a big way in the markets, especially in the small and midcap segment, especially the smallcaps.

Now, if you were to look at the various pockets within smallcaps, if you were to look at any themes which are attached to the capital goods or investment theme, be it something around defence or construction, we find the market is fairly exuberant especially in terms of valuations. Going forward, that earnings growth that we saw this year may come off a bit because some of the margin improvements were due to some commodity deflation and so on and so forth, so there could be some earnings impact coming next year.

If the flows were to moderate, we can see some more correction be it time or price. So, this pocket looks expensive to us and we are very fairly cautious on this part of the segment.

What are your thoughts on the fact that the earnings upgrades in the quarter gone by were one of the lowest in the last several quarters and the earnings quality actually appeared good because of margin improvement. The revenue part of the bulk of corporate India was on slower growth. Does that worry you?
Christy Mathai: Post Covid, the Indian economy has seen dramatic improvements in earnings and mostly consensus have upgraded their numbers with each passing quarter. Last quarter, if you were to broadly see, in the near term, it has been fairly driven by margins. So, in a sense, the top line growth has come off in certain subsegments but we do not think that is necessarily a risk, probably the impact is more from a base impact perspective where we have had previous year or quarter operating from a fairly high base, so that is fine.

I do not think that is a major reason for worry. But going forward, we should see some moderation in margins because some of this was commodity linked and there have been a fair bit of passing on the cost to end consumers in the form of price hikes. If you were to see the whole consumer discretionary pack especially the autos, that is what has happened. Now, it is very pivotal that going forward we should see that volume recovery in some of these pockets and if that were not to happen, then that would be concerning. But as of now, we are fine with how the earnings trajectory is panning out.What is the earnings growth visibility at the Quantum AMC Long Term Equity Value Fund versus the valuation it is trading at?
Christy Mathai: We are looking at around 12% to 13% earnings growth into FY25 and the valuations in the market cap that we operate is fairly large and liquid is probably on the higher side than what we have seen historically. That caps a lot of upside potential in most of our stocks and that is the primary reason why we are a bit cautious on the market going forward.If the broader market offers a correction in the last one or two months, which are the areas which you have on your radar to add positions into?
Christy Mathai: What offers value to us currently is banks, especially the private sector banks where we have invested quite a bit heavily and even if there is more correction, we would love to add to some of these pockets. So, some of the consumption linked themes, be it FMCG, consumer discretionary, even with some correction we do not think they would come to our buy price in the sense if you were to look at stocks.

So, even going forward, we would look to add more into some of these pockets where valuations have been reasonable, be it banks, be it consumer discretionary, especially autos. Two years back we added quite aggressively in the two-wheeler names but now hoping for replacement demand to kick in and in the last nine months, we are seeing some bit of that happening and that has led to some bit of exuberance on valuation.

If there is some correction in this pocket, we would love to add to that particular pocket as.well as durables. The whole competitive intensity has been very high in that whole segment and going forward, there can be some breather . But these are fairly long-term structural trends in the Indian economy. So, these are some of the pockets where we would be looking out to add going forward as well.