“We do have cash in our portfolios. In fact, in new fund that we just launched, we are raising money as we speak, we are just 20% deployed there and I believe we will take at least two to three months to deploy that money,” says Aman Chowhan, Abakkus Asset Management
Last time when we spoke Nifty was at 17500 a lot has changed Adani fiasco, budget, FII selling and Nifty is still at 17500. The bulls would say that despite bad news it is not going higher, the bears would argue that Nifty is not going higher because earnings are down and inflation is back which side of the equation are you on?
I am on the positive side that in spite of FII selling, the domestic liquidity has been strong enough to absorb that and have held on to the markets. What has happened in the near term, see market is a slave of earnings we all know that and last quarter even the current quarter, we have not seen earnings upgrades coming in.
But we have seen two quarters of earnings downgrade rather than upgrade, there are cracks now which are there in FY24 assumptions, slowdown I think is evident in export and rural facing businesses. So if we are in for a bit of a slowdown and earnings downgrade cycle, why should one be optimistic? Why do you think it is not time to raise cash, sit on side lines, wait for the market decline and then participate?
We do have cash in our portfolios. In fact, in new fund that we just launched, we are raising money as we speak, we are just 20% deployed there and I believe we will take at least two to three months to deploy that money. So it is not that we are fully invested. At the same time, it is not that when the market is down all sectors will be down and vice versa. There will always be some sectors that outperform like last year IT and pharma were down; cap goods, engineering companies did well. Going ahead there can be another level of sector rotation maybe financials can continue to do well. So you need to position yourself.
From a market standpoint how should one read into the Adani fiasco, do you think the impact in terms of collateral damage on lenders, the domino effect in terms of market positioning, the technical selloff what we have seen, is this behind us now?
I think that it is more of a sentimental impact than liquidity or a lender’s impact. At least for now, we do not see that this fiasco spreading out to other markets. Sentimentally also, I believe bulk of the retail HNI category would be impacted here. So while there are two sides of the coin, somebody would have gained out of this fiasco also but more or less, we can assume that people would have lost money and I think it is a matter of a few months before this gets forgotten and life moves on.
You spoke about two themes, one was private banks, something which you bought I think six, seven months ago, and then there were a lot of railway stocks which are part of your portfolio, whatever we have in the public domain. Have you identified any more small, niche themes for 2023?
So within financials, microfinance is something that we like. This sector is coming out of the Covid worries and there is very strong growth numbers that we have seen from all the players in this mi segment that is something that we like. We are incrementally getting positive on auto ancillaries also. While we do not own a direct auto stock, but we are getting into new names into auto ancillary. Railways manufacturing, clearly there is a good headway for the next two to three years. The only issue is to get liquidity and to get stock at reasonable prices so that still is not something that has been, it has been in our radar, but we have not been able to execute much on that front. Pharma, on the fringe is looking good. The kind of companies which got impacted due to higher API prices will now start to regain the kind of API company numbers which you have seen where profits have declined by 30, 40%. Clearly it is going to benefit the pharma companies which use this API. So the next maybe three, six months, pharma can also be an interesting sector to look at.
But has not the pharma seen what could be called as a structural damage, especially the US companies, whatever assumptions were, demand will remain high, generic companies will take over, pricing will stabilize, all that big picture assumption which we had three years ago that pharma will be the next IT, that has got challenged. I mean, there is a structural problem there. Let’s admit it.
Yes, there is. And we felt that as generic companies, we are anyway selling products, which is one third or one fourth or maybe one tenth of the non-generic products there and hence we might not face margin pressures but that has not been the case and hence one has to be very selective. So out of the top 10 pharma companies exporting to US or the European markets, maybe only two or three who have a strong portfolio and maybe a strong brand positioning will be able to do well.