What about the liquidity flow that we have seen because the FIIs have decidedly either not participated or been on the fence for the most part? It has been a domestic-driven rally for our markets. Is that going to continue?
Vinit Sambre: This is one of the important facts where markets should not see big declines because the dips are going to be used by all sorts of investors to build positions. You are right FIIs have been on the sidelines. Even our interaction with a lot of them suggests that they are pretty much sold on the India macro story. They all understand the story. They want to participate, but just that some of them are a bit cautious around the valuations, and the moment we have some bit of easing out on valuations, investors will want to come into and participate in the long-term growth story out here.
So, I would say that maybe the declines will be shallower and you will keep having the market strong unless you have some Six Sigma kind of an event. But broadly, we will keep seeing the foreign flows coming through and wanting to participate in our India growth story. This is at a time when other economies like the second largest economy, China, have been dwindling, and I think it is also an incremental positive as far as India is concerned.
You have made a very interesting point in your notes that two sectors are currently at inflection points – specialty chemicals as well as IT. Which way do you think these sectors would head because a lot of question marks, and a lot of underperformance have been behind us? Nifty IT is already scaling at an all-time high and individual stocks as well within that. Does it seem like this is a sustainable move ahead, both for specialty chemicals as well as IT?
Vinit Sambre: Talking about IT, they have gone through a bit of a slow phase and till let us say fourth quarter of last year, they were all sort of talking about slower built-up in terms of growth momentum. Incrementally, what we are seeing is that commentary has started improving on the BFSI front, which is the banking, financial, and insurance category. There, I think the companies are seeing a slight bit of recovery. The assumption here is that the fortunes of the IT sector are linked to the US companies and as the US goes through a cut cycle, that will bring in some bit of growth momentum for the companies out there and that is one of the premises why we are sort of thinking about IT as a sector as of now.
Although the price moves have been pretty fast and we did not anticipate the quick up move, nowadays, the narratives take over significantly, and hence, at any point in time, the room or the margin of safety becomes very low. But still, the momentum should be sustained as far as the IT sector is concerned. While I called out specialty chemicals as a category, let me clarify that it is not a homogeneous sector, and for each company, the metrics are different and we are still seeing challenges with some companies.
Some companies are emerging slightly better where they have been able to crack new clients and I think we are being very stock-specific out here. Companies that had put up capacities were reeling under pressure because of high capex and the business momentum being slow. Incrementally over the next year or so, the sector should bottom out. A major part of the companies within the pack should start seeing the benefit. But it is a bit challenging and prices may be subdued, the inventories are still high and it is not a homogeneous recovery being called out by the customers out there.Any interesting recent listings that you have observed or your outlook on some of the new-age tech companies in terms of valuations, and any trends in the IPO primary markets?
Vinit Sambre: Yes, all the listings are becoming interesting given the interest level that we have seen and there has been a massive pull-up in the stocks and we are witnessing that. But interestingly, we have been selective on two companies where we see profitability and return on capital employed is one of the criteria for us. Companies that have displayed those, we have been open to participate.
But otherwise, in general, we have been a bit slow in terms of participating in some of these new-age businesses because if we do not see a path to profitability in some of them or there are a lot of high expectations built into the prices, then we have sort of stayed away and we would like to watch them. As some of these businesses become more interesting and relevant, we will keep our assessment on and whenever the right time comes, maybe we will participate. But in general, we have been slightly slow in terms of participating across all the IPOs.
