Gurmeet Chadha, Managing Partner, Chief Investment Officer, Complete Circle Consultants, says: “Had you taken Nifty 50, you would have made 30% last year. If you would have taken mid and smallcaps, you would have probably made 50% plus last year. Sectoral indices like realty are more than 125%. The CPSE index is almost 100%. The PSU bank index is almost 90%. The only underperformers at 18% one-year return is FMCG as well as banking. Some of it would probably reverse this year as liquidity eases and rate cut cycle starts, I think some banking performance should come back.”You watch the market as well as the economy and other factors. What gives you more comfort, the economy, the macro data points or numbers of the stocks that you own?
Gurmeet Chadha: I think a combination of both. For example, we often get short sighted by the yearly performance. It has been a great year. First of all, we should thank the market for a stellar year. Had you taken Nifty 50, you would have made 30% last year. If you would have taken mid and smallcaps, you would have probably made 50% plus last year.

Sectoral indices like realty are more than 125%. The CPSE index is almost 100%. The PSU bank index is almost 90%. The only underperformers at 18% one-year return is FMCG as well as banking. Some of it would probably reverse this year as liquidity eases and rate cut cycle starts, I think some banking performance should come back.

If you see the capex to GDP ratio, we had bottomed out in FY20 in Covid. Since then, we have recovered almost 250 basis points. But since 2010, which was the last capex cycle, we are still 500 bps off. We are at the beginning of a new capex cycle. The corporate debt is at an all-time low. The banks are at the lowest NPA and things are looking good.

The utilisation levels are upwards of 77-78% in an economy. Secondly, in the last four years, our earning growth has been 21%, which is FY20 to FY24 and Nifty is up 80%. So, the market is in line with earnings over a three-four-year period and I do not see that 15-18% earning growth getting challenged even this year at a broader market level.

Yes, we may not have a year like ‘23, but there is still some money to be made and I keep saying this a lot of time, there is some money to be made in bonds also. Last time we spoke, the 10-year was 7.20%. As we speak, it is 7.03%. My sense is the 10-year bond will be more like 6.50% by the end of the next year.

You work with a bunch of HNIs and in that kind of investing universe, which is now spread across the country and getting stronger, we have seen reflection of that in the SIP numbers hitting Rs 20,000 crore. Do you think this run rate would not only continue, but keep on going higher incrementally, so that in 12-18 months, we are talking about reaching 25,because this end of the market has been instrumental in providing a lot of stability from FII outflows?
Gurmeet Chadha: Absolutely. Two trends are very clear for this new generation. I interact with a lot of fresh college passouts. They are travelling more. We just have six-and-a-half crore passports. I think this number will grow disproportionately. We just have about three crore odd unique SIP investors. And I have said this before, we have 14-15 crore people playing Dream11 and all that cricket and online rummy apps.

A lot of the money can still go to the formal flows. I think the retail flows are there too. In fact, I have not seen in my career FIIs flow at a decadal low. FIIs holding now is about Rs 63 lakh crore. At the current market cap, it is about 16.5-17%. This was 22-23% pre-Covid. So, there is a 6% drop in FII holding as a percentage, while the retail holding, which is the DII holding, has gone up by the same amount. So, Nifty is at an all-time high with FII holding down 5-6% and retail ownership and domestic ownership up. Indians are going to own more of equity and the best way to play this is exchanges, depositories, AMCs. All have done well and you can probably take a more long-term view on this.

Second, I believe that 8-9% of people who just invested in India, within them also 70-80% are still in real estate, FDs and LICs of the world. So, new investors are coming in. Second, the wallet share is also moving more towards equity and this trend is very structural and is likely to continue. In fact, this $3-billion SIP book will become a $5 billion monthly SIP run in a couple of years from now.

I would like to take one closing comment each from you on the theme or stocks to watch out for in this fiscal. Please be as specific as your position permits you.
Gurmeet Chadha: We are adding two-three themes and I will give you a few names in terms of what we are tracking. One, I think financials will make a comeback this year. So, HDFC and Kotak are due to do well. Probably it will be a little easier for Kotak because the base is much less. It is Rs 4-5 lakh crore balance sheet versus Rs 25 lakh crore for HDFC. You just need one quarter when NIMs do slightly better and a good credit and deposit and that will be good for both the entities.

Some NBFCs have fallen because we saw Bajaj Finance recover from Rs 6,000 levels to Rs 7,200 today. A lot of good NBFCs like Chola, Poonawalla have already done well. They are also tracking some niche names like UGRO Capital which is focused on MSME. We are tracking some microfinance and names like CreditAccess Grameen.

This is one pocket where we are very positive. Credit creation is absolutely necessary and we will probably have our own $500 billion and trillion dollar banks as we become a $10 trillion economy over the long run.

Second, in a state of environment concerns, we are looking at opportunities in terms of recycling content. One stock which we recently added is Ganesha Ecosphere. We are adding a lot of energy names, including Power Grid and some PSU names.