Amid recent stock market volatility, investor sentiment remains robust, with many seeing the decline as an opportunity to enter the market, according to Sanjay Parekh, managing partner at Sohum Asset Managers.
“In this fall of 10%, most of the queries we got were, ‘We want to invest more. When do we invest?’” Parekh said, noting the confidence stemming from India's strong macroeconomic base.
India’s balance sheets across sectors remain resilient, which is bolstering market stability, he said. “The fiscal balance sheet is very much in control.
Banking balance sheets are the best ever, and corporate leverage is at its lowest, he said. These factors, along with a solid wealth effect and improving liquidity conditions, provide a sturdy foundation for market recovery.
While cautioning about near-term earnings pressures, Parekh said Sohum Asset Managers’ strategy is to leverage market volatility. “Markets have had a very volatile ride. We use this volatility to our advantage because you get stocks within large caps at much better entry points,” he said.
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Sanjay H Parekh is the Founder and CIO at Sohum Asset Managers. (Image source: NDTV Profit)
Sanjay H Parekh is the Founder and CIO at Sohum Asset Managers. (Image source: NDTV Profit)
Sanjay Parekh's Sector Picks
Parekh outlined his firm’s current sectoral positioning from a long-term perspective. Financials remain a key focus, driven by robust fundamentals. “It may look obvious, but that is one thing we like,” he said.
Capital goods is another sector where Sohum Asset Managers holds the largest overweight position, while real estate and telecom are viewed positively. Parekh acknowledged short-term challenges in autos, but saw potential over a three-year horizon.
However, the firm remains cautious on sectors like cement due to oversupply and limited pricing power. IT is underweight for now, reflecting expectations of near-term weakness. In contrast, pharma holds a mild overweight position, while FMCG and oil and gas have no representation in their portfolio.
“We are comfortable with this strategy,” Parekh said, noting the importance of stock-specific selection amid a fluid economic environment.
Watch The Conversation Here
Here Are The Excerpts
Sanjay, I just wanted to talk about this pressing question. We were talking to Waaree Energies just now and this whole Green Energy, Solar modules business which is high-growth phase that companies which are listed and have the opportunity are priced to near perfection and maybe beyond, in some cases, are running into a Trump Presidency, which may not be as constructive on Solar, and therefore the export income might get impacted. We don't know, but it's a possibility. How does an investor approach such a high-growth space which has this bit of uncertainty?
Sanjay Parekh: So you actually covered it well. So these are great companies. We have scaled up very, very well. We have a lot of respect for watching this company get listed, and Mr. Doshi and the whole team have done a phenomenal job. It's just that what you're saying is, right, that Trump has a set agenda, or his bias is towards renewables versus a traditional energy and there could be policy tilt there and of course, you know China, the protectionist policies of/ against China certainly is a lot depend on Indian companies who are exporting there.
So that could be a positive as well. So it is fluid, you're right. While you know the opportunity is very large, these are sizable companies, and they've delivered also, which is critical mass in terms of Ebitda and the moot question is, what is the right valuation we pay for it? That is where even we wouldn’t be comfortable. Having said that it's a great company, no doubt about it, the way this is.
We have seen in the last few days, so the fears of the GDP slowing down haven't impacted the markets. If anything, they've shrugged it off well, nine days of gains for the mid-caps and the small-caps, which were badgered in the previous month, month and a half, what's your view? I mean, is this the time to accumulate businesses, or would you use this rally to lighten up some of the positions because you might be bearish?
Sanjay Parekh: Yes, a very, very valid question. So one is, I think the broad construct, the way we think, is that the Balance sheets in India are in very, very good shape. You take the fiscal balance sheet, you will definitely slow down in revenues in one month. But overall, I think on the fiscal side, we are very much in control. The banking balance sheets are the best ever. RBI is contracted. So if it were to provide liquidity through policy, it can.
Household balance sheet on the top end and upper layer of the mid end is again good. Of course, we have a lower strata where we still have problems. Then you know the overall wealth effect, which is the household balance sheet and corporate balance sheet, which is the lowest leverage ever. So all these balance sheets being so strong and the wealth effect that we have of $1.5-2 trillion. In fact, our experience was in this fall of 10% most of the queries we got is we want to invest more.
When do we invest? So that is the way. Our approach on markets is that we are like at least 70% of our fund will always be large cap and you know, we clearly had an earnings slowdown and GDP growth, which came all with the lag markets, I think, took on early in terms of the form based on the second quarter earnings which were disappointed. So we had a weak Q1, a weak Q2, a downgrade in earnings in Nifty, which could be 1060, or so this year, which is at best 5-6% and then next year you know, our estimate is it should be around 1,200 not 1,230-1,240 as someone will expect. So then India, I don't think we would be more than 30 times one-year forward. That would be 24,000 over a six, nine-month period. So I think we are moving a little ahead, but at lower levels of 23,500, when we feel that price risk is gone.
So from here, I think, as the government spends start, we have a reasonably good monsoon, reservoir levels are good, government has come out of this political election mode and towards spend now, and that if we can see that helping recovery of the economy, then I think, you know, we are slowly moving up. So I think in the near term, maybe we will be in the narrow range. I think we should be much more stock specific and in the mid and small cap, the filtering has to be much more and the gap and has to be much more while you're buying mid and small caps. That's our strategy.
Hi Sanjay, Tamanna here, and you know, great to speak with you. I was just wondering, since there is a positive view on India overall, I'm just wondering if you're seeing the FII view and the FII flows outlook also turn positive and to add to that, what has happened in South Korea overnight. Just reiterate today, this is a stable democracy, if you're looking at allocation in the Asia, ex Japan region. Just, does India become more attractive and do you see the FII tide now turning?
Sanjay Parekh: Yes, you know, clearly we are very, very well poised on Emerging markets. You have raised a very valid point of a stable democracy, a very strong balance of payment situation. Rupee has mildly depreciated because it's more of a dollar strength, but that's fine. So this is a fantastic opportunity, where we will grow at least at 6.5%, if not more, and that will mean earnings growth of 11-12% for nominal GDP will be like 10-11% and earnings growth could be 12-14%. So it's a classic opportunity for FIIs on a structural basis.
Having said that, you know, always, I think when we talk to them as well, and I was in my earlier avatar representing, managing global funds. So I think the way they look at it is related valuation, which is making them uncomfortable. Still, the premium is high, and that's where you saw China versus India in the last quarter, I think there's been almost 16-17% outperformance by them. So it does happen. But I think structurally, the only area of concern, I would say, is valuation. The rest is all. I think it's fine. So the right valuation. I am very, very confident they come in.
Just, you know, very quickly, let's get to the, I would say, the main course of what our viewers are very excited to hear from you about, which is what you are looking at right now. Valuations have come off in certain spaces. What are the kind of sectors and, you know, top ideas that you are finding exciting right now?
Sanjay Parekh: So you know, again, markets have had a very volatile ride. So we, for one, are going to use this volatility to our advantage, because, you know, you get stocks within the large caps also at a much better entry point. So we love the themes, the Financials, we may look very obvious, but that is one thing that we like, you know, while Autos may have been near slow down, but I think if we think from a three-year perspective, there's a clear case to buy, and we have that. It's not that we are big overweight, but then we clearly will need more representation, and we are looking at it positively. But as I said, the next two, three months could be weak. That's fine.
Capital goods we still like. We still have the largest overweight there. Cement, we are underweight right now because I think the industry is still not in a shape where you know pricing power is enough, oversupply is there and the larger players want to get market share over pricing. So I think that we are stepping back there. Telecom is what we like, real estate we like. We are looking at some stocks and we had a better entry point. We had one, but we booked profits. So in I.T., we are mildly underweight. It's worked for us in the last six months, but earlier, the two years it did work for us. Pharma, mildly overweight, FMCG, we are on zero, and oil and gas, we are not represented. So we do take sector bets, and this is what our position is and we are very comfortable with that strategy right now. It's worked for us.
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