In FY25, what one should watch out for? Should we temper in the expectation after that solid 28-29% rally on Nifty in FY24 and 70% gains from the smallcap index?
Jyotivardhan Jaipuria: There are two easy things to say – one is FY25 would not give the same return as FY24. The second is that there will probably be more volatility in FY25 than we saw in FY24 because FY24 was one of those dream runs where the market just kept going up one way. So, it is very natural right that once you get, let us say, a 25% return on the Nifty and valuations move up, so to some extent you need a consolidation. I think it will be healthy for the market if we get a period of consolidation because that will help valuations come down to little better levels.

I want to get sector specific and talk about the real estate sector. Of course, today it is coming off a bit after that solid rally over the last couple of days, but what about the next 12 months? After the run-up of almost 60-70% in CY23, could there be a bit of tempering down and is it a case for profit booking or given the multi-year up-cycle, should one continue holding on to positions there?
Jyotivardhan Jaipuria: I think the cycle will continue for a long time. So, the whole capex cycle, the government spending, and India doing well will play out for some time. At the same time, stocks go up a lot and then there is a period where they do not really go up, they need to consolidate gains and one needs to start seeing earnings really flow through. So, to that extent, real estate and a lot of other sectors may be in that zone where the next six months may be tough in terms of stock price, where people are consolidating, now people are saying, okay, show me all the earnings before we have the next leg up in these stocks.

So, for people who want to book out and then try to get back in again it may be a good opportunity to do that. Otherwise, for people who just want to ride out a wave for the next three-four years, then you can hold on to a lot of these I would say the capex related stocks.

Will the view be similar when it comes to the PSU stocks as well – be it defence, OMCs or power stocks?
Jyotivardhan Jaipuria: To some extent, yes, but we split all of them into different segments because they all belong to different segments. For example, on defence, our view has been that they have probably run up slightly ahead of themselves. It is again a good three-year, five-year story and assuming the government policies do not change over the next five years, but at the moment the stocks are factoring in too much of everything getting done to perfection, I have the order book here, and I will implement it to perfection. So, what we need is a bit of pause, a bit of earnings to really reflect in these companies, the order book translates into sales and we get profit numbers before we have a next leg up, so we are a little more cautious there.

OMCs have not done as well, if you think about it. So, there is always a concern before elections, whether the price hikes will be allowed, but post elections if price hikes are allowed, then probably OMCs is one of the cheaper things in the PSU basket.But what is the view in terms of what could be the dark horse? Do you think IT and pharma, which have not been loved enough by the Street, could potentially give more returns?
Jyotivardhan Jaipuria: Yes, these both show up on the screens because we have this whole philosophy of buying stuff which is under owned and which has underperformed, so both of these are showing up on our screens. The one where we have acted actually and where we have done well, we have been buying pharma a lot over the last one year. In pharma our view is that the US generic cycle – which was falling year after year for the last six-seven years – has bottomed out. So, from here, US generic pricing will be flat to slightly better and that provides a lot of room for these pharma companies to do well. IT is something we have still not bitten the bullet in some sense, we keep looking at it.

So, one worry I have there is that the US corporate earnings may not be as good and once the corporate earnings start to weaken, the whole IT spend environment will weaken. Longer term, the worry I have there is artificial intelligence because what that may mean is that the number of people required to do the same job would come down quite a bit, that will be a longer-term problem for these IT companies in India.

Which are the spaces that one should avoid at this point of time? Is financials one space, the private banking names?
Jyotivardhan Jaipuria: We are a little against consensus here. Actually, we have been buying some financials at this stage and we understand the same concerns which everybody has that the NIMs have gone up a lot and NIMs are going to come down and this is a very normal cycle. So, if any interest rate cycle, when interest rates start to move up the first move for banks, there will be a big surge in NIMs because loans reprice much quicker than deposits.

A year later, the deposits start to reprice and NIMs come down. The reason we like them is two, one is when you look at valuations in India today, relative valuations are probably still good for the banks relative to a lot of other spaces, so banks is one of the cheaper places that you have today.

The second is there will still be growth in the economies, there will still be growth in credit and the NPL cycle will not start for the next few years at least. So, to that extent, banks will be a good space though NIMs pressure will be there, we will still see earnings going up because credit offtake will be decent and credit costs will be under constraint. So, to that extent, at these valuations we are in fact relatively buying banks rather than selling them.

But what about some of these niche segments textiles, chemicals, anything that is coming up on the radar in some of these ancillaries?
Jyotivardhan Jaipuria: We do not own textile per se, but textiles is in a decent spot just now because you will have a lot of raw material prices coming down there. So, for a lot of the textile companies, because cotton prices have come down, margins have gone up. They probably will do well. The reason we do not buy them is, one, the liquidity in a lot of these stocks is a problem and secondly, they are very cyclical in nature depending on raw material prices.

Chemicals stocks are something which we are watching closely. We still think it is a couple of quarters away, but a lot of agrochemical de-stocking has started. So, to that extent, over the next six months, we will be adding chemicals. That is one space which investors should watch out for and probably buy in time whenever they want to depending on the patient level. But it is something which from our point of view, is something we will be adding probably over the next one-two quarters.