India Inc not fully insulated from global slowdown- Vinit Sambre, head – equities, DSP Investment Managers

India Inc not fully insulated from global slowdown: Vinit Sambre, head – equities, DSP Investment Managers

Commodity inflation, rising interest rates and slowing rural growth are some of the key issues to watch out for in the near term, says Vinit Sambre, head – equities, DSP Investment Managers. In an interview with Ashley Coutinho, he says 25-30% of the Nifty 50 profit is accounted for by the sectors linked to global commodities, and this profit pool would see a direct impact in case of a global slowdown. Edited excerpts:

What are the key triggers to watch out for Indian equities in the year ahead?

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Further, the government’s thrust on domestic manufacturing would see India’s GDP contribution from manufacturing going up, which should also aid in job creation. Talking about equities, we see these factors supporting the long-term case for remaining invested in this asset class for wealth creation. In the near term, however, we would be watchful of key issues like commodity inflation which is hurting the consumer wallet, rising interest rates and slowing rural growth.

Your view on valuations?

Indian equities have outperformed most global equities due to better macro economic outlook. Valuations look rich, but are justified considering relatively higher growth and improving RoEs. There are pockets where valuations have turned quite expensive like engineering, consumer discretionary and non-discretionary, where margin of safety is low, especially considering the slackness we are seeing in the current demand environment. There are pockets like healthcare, IT and banking with reasonable valuations and good long-term view.

What is your take on mid- and smallcap stocks?

The broad-based macro economic recovery is expected to benefit companies across the board irrespective of market capitalisation. Further, post pandemic, we are witnessing consolidation across industries with leading companies or better-managed ones gaining market share. There are many segments like agriculture plays, home improvements and speciality chemicals where there is no opportunity to participate through largecaps. Hence, we continue to maintain our positive view on mid and smallcaps provided the investor is willing to have a time horizon over 7-8 years, as the true power of compounding is visible in such a time horizon. Behaviourally also, a longer-time horizon helps absorb short-term volatilities of equity markets, especially in small and midcaps.

How do you see external facing sectors such as IT and pharma?

Few external facing sectors like IT and Pharma have built good technical capabilities to provide their services globally in the most cost-efficient manner. And demand here is almost non-discretionary in nature with long runway available for growth. From that consideration, we do hold a good long-term view on these sectors.

What is your take on earnings growth for India Inc in the second half of CY22, given the global slowdown?

If we consider the Nifty-50 index, roughly about 25-30% of the profit is accounted for by sectors linked to global commodities. In case of a global slowdown, this profit pool would see a direct impact, along with other indirect impact across different sectors. In short, we would not be fully insulated and could see some downgrades in line with the global slowdown.

How are you managing volatility in your funds?

The year 2022 has seen some scale-back in valuations after a massive one-way rally. It is healthy for the markets to consolidate at regular intervals or display high volatility which allows shareholding to move from weak hands to strong hands. Likewise, we are using the current volatility to look at good businesses which would become available at reasonable valuations.

Domestic liquidity and retail contribution have helped cushion the market this year amid FPI selling. Will this continue?

India as a growth market will keep attracting investors who seek long-term wealth creation, be it domestic institutions or FPIs. FPIs are not doubting India’s fundamentals and are principally reducing their exposure due to the valuation premium, as it allows them to compensate for a bigger loss in other markets. At some point, we see even FPIs coming back to Indian markets. We do not see domestic investors panicking in volatile markets and hope to see them continuing to participate in the growth journey.