Short-term volatility to persist, but India’s medium-term growth remains intact: Shiv Chanani

“If you think about from the last maybe two-three weeks before, we were all thinking oh, we do not know what is going to happen with the US, how big the slowdown can be, we do not know what is going to happen with China that is going to suffer a lot, hence we do not know what is going to happen with the global growth, so on and so forth,” says Shiv Chanani, Baroda BNP Paribas Mutual Fund.

Firstly, your take on the markets, how are markets expected to react, in the medium term are you witnessing any growth triggers, and believe that in the medium to long term you too are bullish on Indian markets?
Shiv Chanani: So, very interestingly in the morning I came across a quote which said that there are decades when nothing happens and then there are weeks when decades happen. So, if we go by what has happened in the last couple of weeks, probably that resonates very well and yet, if we look at for the full calendar year, current year, one may see and say that look nothing really happened in the last five months.

So, that is the kind of situation where we are, where lot of things happened in the last five months, yet it from a market perspective looks like nothing happened. So, yes, that is where we are from a trajectory perspective. But what has really happened in the last maybe four-five months and more importantly last two to three weeks is that things have become a lot more determinate as compared to the uncertainty that we had.

So, if you think about from the last maybe two-three weeks before, we were all thinking oh, we do not know what is going to happen with the US, how big the slowdown can be, we do not know what is going to happen with China that is going to suffer a lot, hence we do not know what is going to happen with the global growth, so on and so forth.

I think as we stand today a lot of those variables, number one, they do not look as bad as probably they were looking earlier, yet it does not mean that we will not go through some kind of a pain. We will probably go through that pain, but as I said, it is a little more determinate and hence the uncertainties are relatively less at this point of time compared to, let us say, where they were maybe two-three months ago.

So, in that sense, in the short term, yes, the uncertainty is lower, yet we will have some kind of a growth slowdown globally and probably to some extent even in India in the next three to six months kind of a time frame and then as usual they say it is always a story of two halves, what we saw in the last year where first half was great and second half was not so great maybe, we will see the reverse this year where first half may not be that great but the second half is pretty good and strong.
So, now like you just said that the uncertainty is slightly lower at this point, but then there could still be a growth slowdown. So, I want to understand from you, in the past couple of days we have been swinging between red and green in the past few sessions, so what would you suggest to the investors who are looking to place short-term bets and for those who are looking at long-term opportunities, any specific pockets that you are bullish on?
Shiv Chanani: So, short-term three to six months is clearly so-called out of syllabus for me. So, we do not really think from a three to six months perspective when we are talking about the equity market in particular but, as I said, yes, probably the volatility will be much lower compared to what it was, but yes, there will be a bit of a slowdown from a macro perspective.From a medium-term perspective, obviously, we are all very constructive on the market and what we have always been saying that look in terms of the market returns India as an economy should deliver, let us say, anywhere between 10% to 11% kind of a nominal GDP growth, at least for the foreseeable future, and there is no reason why the underlying market should not deliver returns which are at least similar or maybe a tad better than the overall nominal GDP growth for the country.

But the other news that everybody is tracking on is the tariff related impact. Well, of course, when the news started hitting us, we have seen all these export related companies underperforming, they were actually getting sold off. With respect to that if the worst is behind, do you believe it is once again to look at some of the pockets which are export-oriented and wherein there is a chance for investors to earn some money?
Shiv Chanani: So, look from a tariff perspective, what we have mentioned earlier as well is that if you think from a first order impact, India was never very impacted because we have a very limited exports to the US and much less in terms of when we talk about engineering and things like that, that is just around I think $40-45 billion of number, so that was never a big overhang for the economy like India at any point of time.

What we saw was a second order impact where we said that because all of those things, maybe there is going to be a slowdown in the US and hence you are going to see a lot of export-oriented companies impacted because of the demand slowdown there rather than the Indian exports being uncompetitive.

And, as I said, it is not that the slowdown is not going to be there, but probably it is becoming a little more determinate. Maybe till one month ago we did not know what is going to be the degree of that slowdown. Right now, we have a little more confidence that okay it is not going to be as bad.

Probably, you will have a couple of quarters of slowdown even in the US and things will probably come back to normal post that and that is where one can be a little more constructive on the exports from that point of view. But yes, as I said, you will still not need to go through that bit of a slowdown in the next two quarters.

Like you said, there could be a slowdown in the US in the coming two-three quarters, do you see a trickle-down effect of that on India as well and if so, are there any particular sectors that you would like to avoid at this point given the key risks that you are seeing?
Shiv Chanani: So, again, what we have been maintaining is that at this point of time we are a little more constructive on the domestic demand-oriented sectors compared to the external sectors and we know that with the monsoons coming and the benefits of the lower taxation coming through, the most part of this year we should see an uptick on the discretionary consumption pie and, of course, you have certain steady growth sectors like the healthcare which should continue to do well and like you have been highlighting just before this particular piece about couple of capital goods companies talking about a pretty decent sort of order book.

It is probably going to be a little more bottom-up approach on the capital good side where we will need to pick certain stocks or companies which will do pretty well over this year.

The whole FII come back because for the past two month at least and in this month to date as well there have been buyers in the cash market, but with this China once again looking attractive to select investor is what we are reading in the reports, because of the fact that the US-China deal has been announced, do you believe that there could be a change in stance in the FII view with respect to India?
Shiv Chanani: So, this whole concept of India versus China has been longstanding as to how the foreign investors are looking at it and the FII investors had a several takes at China in the last maybe three-four years where they have thought that okay China is a great market, valuations are great let me get there and, of course, in six to nine months’ timeframe they find that things are little different from what probably they thought.

Whereas if we look at India, the key selling point for the India or Indian market as investment destination has been that you get a steady growth in this market, that is a promise which remains fairly intact and we believe that this is something that will probably continue to attract flows at different point of times.

The last point being that, very often it has been talked about that the valuations for India are very expensive and that variable for, let us say, the range bound market that we have seen in the last maybe six to nine months, that particular variable is also getting addressed where at least the headline in valuations are probably in line or lower than the historical numbers that we have seen for Indian market.