It has been a flip-floppy, exciting day today in the market. We touched those all-time high levels on the Nifty, Sensex, midcaps, new levels, new highs. But then it corrected. It did not sustain at all. Now, it is just managing to come back to the positive side. What is the thought? What should one be reading from all this?
Niraj Kumar: I guess the volatility is going to be maybe the order of the day for at least the next six months or so and the reason is pretty simple. Basically, the market is looking for clarity in terms of politics and the policies. Politics because, of course, India is going through election and hence any sort of maybe clarity would be the market is really waiting for

By policy, what I really mean here is in terms of the US Fed policy or the monetary policy stance by most of the monetary or the central governments across the world. That is going to put a lot of pressure on the market and hence we would continue to see a lot of volatility, maybe more so in certain segments of the market because those segments have actually seen a euphoric rise in market cap, especially in the midcap and smallcap segments.

Broadly, we are not seeing such a huge volatility when it comes to largecaps, especially those where we have seen a larger consolidation happening. So, the market is just looking for clarity in terms of politics and policy. Unless we really get that clarity, we are going to be in that zone.

In this market, would you keep looking at the largecap side rather than the mid and smallcaps which according to everyone has been frothy? We did see a bit of a correction, but they have started outperforming the benchmark.
Niraj Kumar: So, that bit is really interesting because what is happening is there are certain segment or certain pocket of the market which is especially in the small and midcap, they also have run up because traditionally in that segment perhaps the exposure of either the retail India or perhaps the institution were not really as much and hence, you really saw a lot of money coming in the system and really have moved to maybe in terms of the multiples which is really a historical high and clearly it really posed a lot of challenge.

But let me also tell you that when you really are looking for clarity in terms of the growth path, the segments which give you a lot of clarity are also spaces which are looking pretty good, maybe from the medium term perspective. So, short-term volatility is likely to be in that pocket and hence, one has to be really very mindful and understand that maybe the opportunity is for medium to long term. We are seeing a structural change happening in India and perhaps those are the segments which are the beneficiaries and hence, one really needs to look at more of a bottom-up approach for the market. There are pockets where the euphoric rise has happened, but still they really offer some value from a medium term perspective, but there maybe certain pockets which we need to ignore. If you look at the largecaps, you would see that half of the market has actually gone through a lot of consolidation whether it is IT, FMCG and some of the segments where we have not really seen market moving as much and hence, perhaps market is also looking at some sort of rebalancing which can start happening in the next six months.Is there any specific pocket that one could look at? Right now you are mentioning how in IT, FMCG, nothing exciting has happened. But look at the runup we have already seen in PSUs – be it in banks or defence? Which pocket are you looking at?
Niraj Kumar: There are four-five pockets where we think a lot of value would still emerge, especially in the medium term. One is, of course, the PSU theme. Perhaps in terms of profitability. It has started improving but FY2025 could be the best in terms of the profitability for most of the PSU banks and that is why you are actually seeing maybe a lot of interest coming in. Unless we see a dramatic change in terms of credit slippage in the system, which as of now does not look like a possibility at least, even if it happens, it will really happen and will take maybe two to three years to really get in that phase.

So, till then, we are looking at maybe a two-year sort of a time period when you are looking at profitability and the ratios are going to really look a lot better. Along with PSU themes, there are microfinance companies which are ignored by the market of late because of a variety of reasons. We have some interest there and that is a space we are closely watching and it is rightly viewed from a one-year and two-years perspective.

The third part is capex related as well as the China plus India theme. It is EMS or electronic manufacturing space, along with the railways theme where maybe a lot of the growth momentum is coming back. There are a lot of infrastructure projects which are coming in and that is making for a lot of order wins for those of most of these entities. So, there are pockets which are still looking good despite the fact that maybe the prices of these stocks have really run up. But one really needs to be very mindful in terms of the valuation and clarity in the growth opportunity in that segment. It is going to be more of a bottom-up approach for any investor perspective.

Earnings season is almost upon us. A lot of Q4 updates have started coming in. Look at the banks, small finance banks, particularly Suryoday Small Finance Bank, what a number that is coming in terms of Q4. Look at the run-up in the AU Small Finance Bank. What is the view one could expect from the earning season? Anything specific that you are watching out for?
Niraj Kumar:We are quite positive on the BFSI space as it has a lot of visibility in terms of the growth, not only for this quarter. As we move on as well, perhaps the whole 2025 really looks interesting to me. Of course, in most of these entities, the larger banks, perhaps in terms of the NIMs, could be at a historic high. It could start coming off, but the momentum is going to be good because we are still at an elevated number in terms of the NIMs and profitability and that is not really going to change dramatically in the next maybe two years.

That is why BFSI is something we are quite keen on. IT of course is going through a transition or consolidation in terms of the growth path. We could see two quarters down the line, that space may perhaps be getting back in terms of momentum, but they have to go on at least for two more quarters where they would struggle in terms of the growth. And as we start getting some more visibility in terms of growth, maybe from the US, things could really start working for them too.