Hope 2025 is bigger, better, brighter for you as well as the markets. But is that the base case scenario because last year we saw gains of almost 9% on Nifty, but it was the smallcap and midcap indices which were up over 20-25%. Is it going to be another year where smallcaps and midcaps outperform massively or do you think there is room for largecaps to catch up?
Nitin Raheja: So, what you have sort of highlighted is correct. I mean, last year was a pretty much of an anomalous year where the largecaps underperformed dramatically while the mid and smallcaps actually gave almost 70-80% outperformance vis-a-vis the largecaps.
And I think that has largely got to do with the fact that you have huge FPI flows that have been taking place. We had the single largest FPI flows in a year, but it is sort of a testimony to our markets that despite this kind of flows we held up and we yet ended up delivering positive returns and it was around 10% for the large and 17-18% for the mid and small.
And broadly this year is going to be equally challenging, at least the first half of the year is going to be pretty challenging because we have earnings slowdown that we are seeing, which we saw in Q2. Q3 will be better considering that we had all the festivals in that period, so whether it was Diwali, Christmas, and so on and so forth.
But Q3 is going to be better. But the earnings slowdown is probably going to take a couple of quarters to wear out. What has really happened is there has been this little bit of a change that we have seen.A lot of our growth was being led by capex and it was primarily government capex. Being an election year, we saw a marginal slowdown in capex take place and that has not yet come back fully in terms of what was budgeted in the last budget in July.
We should start seeing that starting to happen over the next two or three months. You should see a bunching up of orders take place in the next quarter. So, hence, as we get into the next calendar year, towards the second half we will see the impact of all of this on the ground. But the other interesting thing has been consumption, which has been persistently defying expectations and has been slow for some time. We saw premium consumption doing very well in the first half of the year and even that seemed to slow down.
But this whole move that governments have seen of trying to give handouts to and there is more of social spending happening with each election in mind has yielded results.
And if you look at it from the other perspective, clearly the consumer is hurting. And when he is getting this handout coming, he is sort of rewarding the incumbent who is giving him that handout by electing him to power.
But that money which is flowing into individual consumption hand should start seeing consumption also come back as on a monthly basis money is going into the hands of, say, the woman in the family and so on, so forth. So, we should see the bottom end of the consumption curve starting to show signs of revival. But a lot of this in this year is going to be back-ended, we are going to start seeing those signs from the second quarter of this calendar and then depending on how we see monsoons.
But this year, if you ask me, is going to be an equally challenging year. The trend of the last three months, where the markets have corrected almost 10%, for the large and the midcap space is possibly going to be the trend that we are going to see in the near term. So, in the short term, I believe we are in a time/price correction where markets will probably trade within a range of 2000 points. Make no mistake, we are in a long-term bull market, but it is a bull market which is on a short-term pause.
But I just wanted to dig deep a little bit on the point related to the consumption that you were making, that you believe that the bottom end should start showing some signs of recovery, and probably in the second half the cheer should be back. But one such theme that has played very well within the consumption space is the discretionary spending. So, given the kind of run up that we have seen in this particular year, what is your outlook for the discretionary spending? Is that the trend that is expected to continue and do better?
Nitin Raheja: Look, when you talk about discretionary spending, you need to break it up into two baskets. So, we have had this K-shaped recovery post COVID.
So, whether it is in the form of real estate sales or whether it was in the form of premium automobiles and so on and so forth or travel for that matter has done very well.
Now, it is the bottom K, which has struggled. I think the bottom K has struggled primarily because wages have not grown at the same pace as inflation has.
And inflation continues to remain persistent. And hence, you have seen this big dissatisfaction and I believe with almost an amount close to Rs 2.1 trillion being handed out by state governments in the form of social spending or doles if you were to call it, I think that money coming into private hands is going to help that bottom end of that consumption curve revive as we go ahead over the next few quarters.
As far as the top end is concerned, even if you go by the current December quarter, we have seen travel being very robust. If you go anecdotally and check out hotel ARRs or flights and so on and so forth, we have seen that continue to remain robust.
The festival season has gone off well when we talked to a few of the retailers and so on and so forth. So, I think that is not the concern, that segment is less affected by inflation vis-a-vis the bottom K and that is where we see the recovery happen for the next few quarters.
If you had to list out the top two or three sectors for the year, where would you place your money?
Nitin Raheja: So, clearly, we think private banks, especially financials should do well because we see capex starting to fall in place. We have already seen a number of approvals come in place. We see government capex coming back. We see private capex fall back. So, we do see banks doing well. And if we do get the rate cut, that actually works very well for private banks, so from that cycle perspective, it would work out well, so financials is one sector.
The capex sector, such as power, railway, engineering companies should do very well. We see telecom being a growth sector and with one of the large incumbents announcing their IPO at valuations, we clearly see there is a pressure, that we do see ARPUs increasing, so we see telecom doing very well. And autos also continuing to do well.
