US elections | Fed rate cut: Once rates are cut, will commodities & high-growth companies face reversal? Dinshaw Irani answers

Dinshaw Irani, CEO, Helios MF, says in the case of India, the real interest rates have been very high all along and that is why we always believe that the private sector, given the paucity of demand and the fact that the real interest rates are so high, will not undertake capex at this point. They will wait for these rates to come down and demand to pick up. One big indicator will be when RBI starts infusing some liquidity into the system as such

One big moving part would be interest rates will come down globally, and hopefully locally. Now, purists would say interest rates are like gravity. When they go up, valuation should go down. And when interest rates go down, valuation should go higher. Are we looking at this reversal at play, whether it is for commodities or for high-growth companies?
Dinshaw Irani: I think that consensus trade has already played out. I would not be too surprised if it is a sell-on-news once the interest rates start getting cut out there and depending on what aggression they come up with, I do not think they are going to be too aggressive because both the US presidential candidates, Kamala Harris and Donald Trump, are going to be inflationary for the economy. The Fed is going to just give out a token cut and probably wait out what the new policies are before taking aggressive cuts. The aggressive cuts will only start by the end of this year or beginning of next year. That is when the real kicker will come in.

In the case of India, the real interest rates have been very high all along and that is why we always believe that the private sector, given the paucity of demand and the fact that the real interest rates are so high, will not undertake capex at this point. They will wait for these rates to come down and demand to pick up. One big indicator will be when RBI starts infusing some liquidity into the system as such. Despite sucking out the liquidity, there is pressure on the rupee regularly. That has to be looked out for before taking a call on interest rate sensitivity in India.

When you see the market from the lens of safety, apart from IT, where else do you think there is safety with decent growth?
Dinshaw Irani: So, one area that we have been always bullish on and we continue to be bullish on is obviously, right now, I mean, bullish as in I am talking about a medium to long term, is the banking space. The non-lending space of financial services is a fantastic area to be in. Though the valuations are looking a bit stretched out there, some pockets are still giving good growth and will continue to give good growth. So, that is one area that one needs to look at.

If you look at my financial services fund, the banking space accounts for 60-65%, the rest is services. We are one of the few with around 24-25% exposure in small-caps on the financial services front. We find it exciting and we keep finding new ideas out there. There are a lot of options even in the platform companies in that space.

Stocks like Policy Fintech and Paytm were available at bombed-out valuations. Tencent sold their stake in Policybazaar or PB Fintech at Rs 400 and today they have sold at Rs 1700. What has changed?
Dinshaw Irani: Basically, this is the way to go. What do you look for in a platform company? One, they have globally established formulas. Most of the domestic plays that are successful are globally established plays. Secondly, is there a convenience being offered? Yes, most of them offer conveniences. Secondly, is it encashable convenience? And is it mass and cashable? It is. And are they easily replicable? They are not.

That is why we do not like certain platform companies which we believe are easily replicable and that is why we are very clear on those that are not easily replicable and those are the companies we want to be in. You named a few of them. We continue to be there. In one of them, we have added weight to recently given that the regulatory action has taken a backseat. The regulator has been fairly benign towards that particular company, where they came down heavily earlier. They are fairly benign now. Things are looking pretty ripe out there.