Indian market to emerge stronger from global trade shake-up: Daljeet Kohli

“This was a surprise because many people never thought that it will be such a sharp rebound. Why it was, because the tariff war is a reality and it is going to have an impact on economy, it is going to have an impact on various trading blocks all over the world. It is not that it is a simple thing, one day thing, one day phenomena, and it is over,” says Daljeet Kohli, Roha Asset Managers.

Firstly, help us with your take on the markets then, because what a rally we have seen in the month of April itself and as we come to the end of this particular month, do you believe that there could be more legs to this particular rally or do you see this as a dead cat bounce or rather we should be in for some more volatility?
Daljeet Kohli: See, it is very difficult to take a call on the market at this juncture. It is a surprise actually for everyone that at the time when this tariff thing was announced how markets behaved, in just a few days we saw just markets crashing down and then a rebound was also equally sharp.

This was a surprise because many people never thought that it will be such a sharp rebound. Why it was, because the tariff war is a reality and it is going to have an impact on economy, it is going to have an impact on various trading blocks all over the world. It is not that it is a simple thing, one day thing, one day phenomena, and it is over.

However, what market has done or why there is so much of exuberance has come back in such a short period is probably one that there is a pause of 90 days.

So, now there is a belief that in 90 days many of these things will get reversed or they will not be as bad as they were like 15 days back, on 2nd of April the way things were announced. So, market is probably going with this fact that the ultimate tariff structure will not be as bad, there will be actually significant roll backs, and in the end of entire turmoil probably India will be a winner.

Now, this is the thesis which right now market is working with. Now, over time we will come to know whether this thesis was right or wrong, how it moved. But what we understand at Roha we also believe that ultimately we will be the beneficiary in this entire turmoil purely because of our own inherent strengths, our economies strengths, our demographic strength, our own capabilities and only thing that has been lacking in the past was our capability to encash these opportunities. We had these opportunities in earlier times also, but somehow we missed them or we did not encash enough of them.

So, probably this time we might have learned something out of that and we could do. Right now market thesis is this that we will be the winners and therefore this sharp bounce back. But our understanding is that in this period of 90 days we will see such kind of bouts of up and down quite often when some negative news flow will come, market will react like this only.
So, you are saying that this volatility could continue. So, how does one play this market, what are the pockets of value that you are seeing how does one get into allocation now?
Daljeet Kohli: So, in the times of volatility, first thing you have to do is you have to keep your mind cool. You do not have to react on every news. You do not have to get jump onto the first positive news or the first negative news. So, you have to understand how things are going to impact your particular portfolio, whatever stocks you are owning or if you want to own something new, how it is going to impact that particular stock. There will be very different impact on each company versus what a macro picture will tell you.

So, on a macro basis, it will be very simple oh, everything will become costly by 25%. If India has 26% tariff, everything will become costly by 26%. But it would not be the same reaction for each company because company-wise for somebody passing on this 26 may be very easy, but for another company passing on even 1% will be very different.

So, you have to analyse each company by company and this is what we as fund managers are supposed to do. We do that. We have also done in our portfolio that once these announcements were coming or when there was expectation.
Rework on all our models, on our companies that where are the earnings going to get impacted or how much the earnings are going to get impacted.

So, somebody like an export oriented to say a blank statement now we have to avoid export oriented companies, that is not the right way.

He will have second order impact, but not that one on one or such a great impact. So, we have to work on that.
Only small portion we had to do, but most of the places we had to remain in, we were intact. Mostly our portfolios are very small and midcap companies which are normally not very one on one linked to what is happening on the macros or on the global front, they are quite immune to most of these things. Some of second order impact happen, some collateral damage happens, but that is temporary, so that we have to play.

So, in our portfolio what we have done is we mostly we have continued with the same stuff, not even one change we had to do.

In fact, in all this mayhem some of our stocks were corrected by 10-15%, so we took the opportunity to add some of them wherever money was available. On your question which are the pockets of value or which are the places where we can look at, this time also we have been very positive on domestic consumption for past six-seven months in our portfolio. As a disclosure we hold quite a few names, four-five names so that covers the entire spectrum from very high-end luxury car distributor to small appliances company catering to rural areas, so that kind of variation. We have pipes company. We have a home building product company.

We have saree seller in south India, that company is there in our portfolio. We have real estate developer.

Understand that being domestic focused is the key mantra in this uncertain times rather but what about financials, what is your view coming in on that particular sector because in this volatility that sector has been an outperformer and everybody has been liking them on the back of cheap valuations. But given the run up and given the fact that with the rate cuts, their NIMs could be threatened a bit, do you believe that there is still a scope to look into financials or would you avoid at this point in time?
Daljeet Kohli: We have had very small exposure to financials in our portfolio. Almost just two companies we have in our portfolio, one is in power finance other one is in home finance. We have avoided this sector mainly because there was a lot of issues about the cost of funds going, deposits not coming in and then asset quality also deteriorating at some places. Some of these things have ameliorated a little bit, they have improved a lot, but stock prices have moved much ahead of that. So, I think we are still waiting on the sidelines. We are looking at some NBFCs. Probably with this rate cut cycle starting, I think NBFCs will be the gainers. So, we are trying to explore some ideas there and we believe that maybe next one or two quarters maybe this MFI portfolio might improve a little bit because it would have seen the bottom of its worst kind of thing. So that time will come but as of now exposure is very-very small to these two companies.