India’s macro tailwinds offer relative strength amid global uncertainties: Jyotivardhan Jaipuria

"India is one of the few countries where we are getting that sort of liquidity coming which is helping us a lot. But there are some global factors which are not in our control, like the tariffs which are going on with the US," says Jyotivardhan Jaipuria, Founder & MD, Valentis Advisors.

Tell us what are we looking at as far as the near-term is concerned because if you look at the entire year, we were working with rather lukewarm expectations or expectations of a lower return. But if we look at the macros now and how macro is shaping up, it augurs very well for India whether it is the dollar cooling off or whether it is the oil prices coming off or the FII buying that is coming back to India. But there is a looming threat of the tariffs, there is an uncertainty as far as the US economy is concerned, and of course the Indo-Park tension that is ongoing. How should one really look at these markets and how should one be placing their bets?
Jyotivardhan Jaipuria: Yes, like you said it is a year where it is going to be a year of low returns in the sense that if you see the last four-five years post covid, return have been extraordinarily high. We had a sharp re-rating of the market as well as good earnings growth which came both from topline increase as well as from margin increase.

So, to that extent markets need to consolidate and we probably are going to see that consolidation phase in calendar year 25. Now, obviously like you said the macro is turning very positive for India and at least on a relative basis India is looking very good because one is, oil prices have come down which is giving room for RBI to cut rates and plus they are increasing liquidity in a big way.

So, we have seen very easy monetary conditions. Over the last four months, they put in six lakh crores of liquidity in the system.

So, India is one of the few countries where we are getting that sort of liquidity coming which is helping us a lot. But there are some global factors which are not in our control, like the tariffs which are going on with the US.

Our view is that probably the worst of the tariffs we saw on April 2nd and from here tariffs are going to get a little more sane. We will see a lot of deals happening and so maybe four months later we will find that the tariff is not as bothersome, but in spite of that probably you are seeing a global economy which is going to slow down.

The US will slow down. A lot of other parts of the world will slow down. So, India will have to fight that headwind which they will see. Of course, the India-Pakistan situation is tense, though my view is that we probably are not going to see that flare up in any meaningful way, so it is something which will pass. If we go back into history of markets also, you tend to see that every time there is a conflict, market get nervous at the time of the conflict, but soon markets get over with the conflict and markets start to resume their normal space.

Yes, a lot many moving parts right there and for the past couple of days we are seeing that the markets are just holding that nervousness around, not doing much. But give us some sense, what strategy should investors adopt. Is it time to protect the capital or maybe it is a time given the correction that one can still start buying and if yes, then which are the pockets that are looking attractive?
Jyotivardhan Jaipuria: So, people have to buy today thinking of the next three years, do not buy thinking of the next one-two months. It is a time, like I said, to build your capital and think of this now more like a test match not like a T20 where we are going to build our portfolio for this year and then we get the returns over the next few years and keep your return expectation tempered, like what we got in the last three years may not repeat in the next three years.

The other suggestion I would have is probably try and stagger your investment over the next few months rather than put it in one shot now because there are a lot of uncertain events.

So, a staggering approach would work well. If some of these things do not go well, at least you have money to buy more at that stage. Some of the stuff which we like, for us we typically tend to focus on valuations. We are very valuation conscious.

We like to buy sectors which are beaten down and which are not in favour. We generally do not buy momentum stocks. We buy probably, I would say, anti-momentum companies.

So, we like the banks still and we were very early to call the banks. We think that still continues to be a pocket where valuations are looking cheap. And if you look at and I have said this on some shows earlier also of yours, but if you look at valuation in banks today versus what a 10-year average is, banks is probably the only sector where valuations are cheaper today than a 10-year average.

So, the banks still look attractive to us. The other segment which we continue to like is the pharmaceutical. But obviously there is some threat that if Trump goes ahead with this tariffs on pharmaceutical, then there could be some short-term correction in this whole sector, but otherwise it is something which is looking very good on a secular basis, on a three-year, five-year basis, pharma is something which is going to do well.

Another sector which in India looks good is the cement sector. So, we have seen cement prices start to move up finally after a long time. It is a sector which has got consolidated a lot relative to what was in the past and the top two and the top five players account for the large part of the shares.

So, it is a sector again which over the next two years could be a great way to play. So, there are pockets, focus on valuations and focus on where visible earnings growth are and you will find some sectors where you make good money in the long term.

So, as you rightly pointed out banks is a pocket where you see valuation comfort. You also pointed out that pharma is where you see growth is coming in. But besides that, let us talk about the broader market then, despite the correction the smids are still expensive, especially the smallcaps are still expensive and usually one would like to invest in small and midcaps for value generation, for value creation. How would you place your bets in those pockets, is it going to be a buy on dips, is there a valuation comfort in the sense that on every dip now can you stagger your investment as far as the smids are concerned and within that, what are the pockets of value because there are certain pockets that are still expensive right now?
Jyotivardhan Jaipuria: So, when you look at the small and the midcap, actually it is the midcap which is more expensive than the smallcap. The smallcap is still little better placed relative to the midcap. But very often when we look at the aggregates, when we compare smallcap probably with the largecap or with history, then it is looking expensive. But what goes for the smallcap is the growth.

So, the last one-year earnings growth was weak in the largecap as well as the smallcap or the midcap. In general, earnings growth has been weak. We think that the earnings can recover.

So, if we can get that sort of recovery coming in, earnings growth which analysts are forecasting today and if you take like a consensus analyst forecast, for the largecap the earnings growth forecast for the next couple of years is 12% and for the smallcap the earnings growth forecast is 22%.

So, if these earnings hold and the earnings actually come in line with the analyst forecast, then you will find that the smallcaps have done decently well relative to what we are thinking of today.

The other is like when you look at sector by sector, there are a lot of small companies which do not look as expensive the largecap, though the aggregate everything looks more expensive because obviously in the largecap you have a lot of public sector companies and all which are not represented in the smallcap index.

So, on an overall basis, the largecap is looking cheaper. But when we go sector by sector, we find a lot of small companies which probably can grow faster than the largecap and which do trade at reasonable valuation. The third thing is, of course, we have seen a steep correction in the smallcap. So, if you see since the beginning of this calendar year, smallcaps are down and they were down like 20 plus percent at some point, they have recovered a bit of it, still down like 15% since the beginning of the year.

So, you have seen a correction, probably a year later we will think of this correction as a buying opportunity, means we have done some analysis and typically the highs of the smallcap tend to come in the next 12-18 months unless we have some Lehman sort of event. So, in some sense you can expect the highs to come back over the next 12-18 months and that will make you reasonable money.

Valuations are not cheap still like you rightly said. So, I would say stagger your investments in smallcap, do not put everything in one shot. Be ready for some drawdowns and do not panic at that time, but use the rest of the money you have to buy more at that time. But over the next two years if growth in India holds up, then smallcap will give you good returns.

Given the fact that now in US, the market is really open to make trade deals happen and well, of course, we will be watching out for the final trade deals as the Donald Trump has already indicated for one, but give us some sense that if major nations go through this trade deal sort of a thing with the United States, do you believe maybe it could be a time to once again look out for some beaten down commodities, beaten down export-oriented names?
Jyotivardhan Jaipuria: So, one segment which we have been nibbling into has been the chemical sector. So, if we just step back and think chemical sector done very badly over the last two years and the positive for us is that there was a lot of excess stock lying at the dealer level in the chemical sector, that stock has gone down.

So, now the situation is much better. Demand is picking up a bit and at some point if demand picks up, then the dealers will start to restock rather than destock which they have done so far.

So, second is the valuations have become much cheaper because these sectors have underperformed quite a bit. So, it is a sector we are nibbling into. Now, US tariffs do make a difference to this sector because if US tariffs are very high, then probably the US market get blocked off.

So, if we can get a trade deal done there, then chemical is one sector which one should focus on and there are valuations which are now starting to get attractive. Not all of them are very cheap, but at least they are starting to get attractive and growth will come back in this sector.