India’s macro is robust, but markets lack clear value pockets: S Naren

So, let us now focus on a very basic investment approach which you have adopted over the years, which is buy fears, sell greed; be contrarian; try and buy what others are selling when you find value there. In that same spirit, you bought telecom, you bought into metals, you bought into banks. I can see one pocket of fear in the market, which is IT. Nobody likes it. Everybody has a view that nothing could go right on it. Is it a time now for you to put your long-term lens and start buying into it, especially IT services?
S Naren: See, we are looking at it. Unfortunately, it is connected to the US market and US market is not yet value. US market has done extremely well. So, if we see some decent setback in the US market, we will certainly look at IT, that is where we are struggling at this point of time.

But the reason why we came to looking at quality was, quality was a theme which had not done well from 2020 to 2024, that four years was bad. So, we said okay let us look at quality instead of value because quality was something which had done badly and we thought that relatively that is an area which peaked in 2020 and we thought that we can try that and that is how we came to quality and quality would definitely include it, would definitely look at FMCG.

It would look at many of the two wheelers. So, you look at it, it would look at many of the segments of market which have done very badly over the last four to five years and that is how we came to this area. But it would certainly be part of it. But we are confused at this point of time because the sector is trading at a premium to pre-covid valuation and the sector is growing at much slower than pre-covid. So, if we had seen the valuations being slightly lower than pre-covid, it would be a very-very interesting contrarian opportunity.

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Why have you come up with a NFO which is called as a quality NFO because quality stocks are trading at a premium.
S Naren: No, quality stocks always trade at a premium. You cannot expect quality stocks to trade at a premium. Your junk stocks are the ones which have to trade at a discount. So, it would trade at a premium. But what happens is that when you have a 12-year bull market, after 12 years people say that you can invest in junk, you can invest in anything and make money. If you look at the market, you would see that how much money is there in FMCG fund, how much money is there in consumption fund. All these funds have very little money. Whereas if you look at the amount of money which is there in smallcap funds, it is much-much higher.

So, I would say that we have actually a 12-years of a big bull market, means that people want to actually take a lot of risk in equity and they do not want to be in the safest parts of the market whether it is largecap or quality, that is why first we came up with a fund called

Minimum Variance which was focused on the defensive parts of largecap and then we said that we should look at quality. So, it is exactly the anti-thesis of what people are doing at this point of time.

Debt, macros are great and given where bond yields are right now, are they also pricing in a near-perfect scenario and there is very little room for the debt market now to rally from here?
S Naren: See it is a big problem because in India you look at it unlike US for example. In India, we are at the lowest interest rates in years on 10-year, whereas in US we are at possibly one of the highest interest rates in years on a 10-year basis.

10-year G-Sec is at except China and India, across the world you are at the highest yields in 10-year. So, it is very tough at this point of time for us to tell people that Indian debt is a great asset class, that is the challenge today. Neither is Indian debt a great asset class. Gold is even worse. So, one of the ways in which we judge how much an asset class is let us say moment too much in focus is the number of questions we are asked.

Actually, the asset class which is most in vogue right now is gold. If you go for any meeting, the number of questions we get on gold is unbelievable at this point of time. So, gold is at all-time high.

10-year yields are at almost at all-time low, except in crisis periods it has never been at these yields. So, it has been a very-very tough period on where to put money at this point of time and that is why we tell people put money everywhere because there is no pocket where you can say that it is cheap, so you can put money there.

Even two years back, for example, gold and silver were very-very interesting, so we actually thought it was very-very interesting, now even that does not look at this point of time, in fact it looks to be the darling asset class of Chinese investors and many of the global central banks of the world.

So, it is a very-very tough time. So, I think it is a time where you allocate money across asset classes and not choose one asset class and at the same time today focus within every asset class on the safer parts of the asset class because of the way the markets are at this point of time. Does it mean that the markets are going to fall?
No, because I think India is one of the best structural stories and where the macro has been handled brilliantly over the last decade. So, India does not look to be the market which is at risk at this point of time, but at the same time it is not a market which is value at this point in time.