Swanand Kelkar On What's In And What's Not In His Portfolio

India is the place for bottom-up stock picking in any emerging market portfolio, according to Swanand Kelkar, as it's in a better place than peers.The country's preference globally can further be attested by the copious volume of incremental money coming in, Kelkar, managing partner at Breakout Capital Advisors Pvt., told BQ Prime on Alpha Moguls. India's political, social, and economic condition is better as compared to other emerging markets, he said.However, he said, it is important to keep an eye on the fiscal deficit figures, adding that, with 2-3% fiscal deficit, India may need $80-100 billion of outside capital to bridge the current account deficit.This basically means importing savings from other parts of the world in the form of foreign portfolio investment in order to balance fiscal and current account deficit, he said.On expensive valuations, Kelkar reckoned that the starting point valuations have a high co-relation with future returns. In fact, he said, about “one-third of the top hundred companies in India have a FY24 PE of over 50”.It is imperative to be conscious of both valuations and growth simultaneously for absolute returns, he said. On those grounds, consumer staples, consumer discretionary and new-age technology stocks are not a part of his portfolio..Kelkar is currently more exposed to the investment side of the economy rather than the consumption side. Frontline sectors such as cement, engineering, construction, financials and real estate are some of his key preferences."We look at buying something that is trading at 2-3 standard deviations versus its history," the fund manager said.When asked about his views on per capita consumption to GDP ratio, Kelkar said that he is skeptical of the per capital-to-GDP rationale, especially in India.However, he does buy the fact that as one crosses thresholds of certain levels of per capita income, the propensity to consume certain items changes. As a result, the consumption basket changes too.For instance, "low-end FMCG volume is insignificant because we have reached the penetration numbers", he said. .MSCI EM Index, also called the Emerging Market Index, has been stuck in the same range for 15 years, since 2007, said Kelkar.This is because the index is an aggregate representation of developing countries growing in different directions. Hence, when one is to average out, growth appears stagnant, he said.According to Swanand, it is important to look at the index as an "investible universe instead of a cohesive economic parameter".He also said that the growth differential between emerging and developed markets is starting to exceed. Therefore, if there is one marco indicator that has a reasonable co-relation with future equity returns in between EMs and DMs, it is "nominal growth differentials", the expert estimated.Besides, if the dollar remains strong, the returns generated from the world will get weaker, Kelkar said. This further pushes the focus on markets outside of the U.S. from an investment point of view.

Swanand Kelkar On What's In And What's Not In His Portfolio

India is the place for bottom-up stock picking in any emerging market portfolio, says the managing partner at Breakout Capital.

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