Tariff jitters temporary, long-term upside intact for India Inc.: Deepak Shenoy

Lots to talk about. We have lots of news flow that has trickled in over the course of the weekend. Give us a broad sense of the kind of trading action that we have can expect through the week?
We saw about 25,000 crores enter the markets as fresh entries into mutual funds in April and given that May was like a 9% plus month for smallcaps and smallcap funds have been the second largest recipient of funds in April, that will kind of bolster more retail investment into domestic funds even more.

Given that, overall fund flows seem to be more concentrated towards domestic. There is also a lot more action in terms of results and some of these tariff news and all that stuff which is kind of still creating a lot of uncertainty.

People have come to the realisation that there is a little bit of back and forth and anybody says something about tariffs that is likely to be changed very quickly in whichever direction and mostly in the direction of removing those tariffs in a short period of time.

But I feel that in the end we will come down to 10% tariffs by the US to everybody and by and large some countries may receive a little more but I do not think this is going to be a major impact longer term.

Live Events

Once we realise this, it is less of an impact overall. The themes that seem to still be working is manufacturing, is financialization, and is maybe defence as well. The themes that hurt perhaps are commodities because a large amount is based on world-wide demand as well, so that theme seems to be constant. I do not think today is any special day in that sense, but we have to be cognisant that as these tariffs come off and as eventually the wars in the world come to some kind of conclusion, the upside for India is definitely strong and I am biased, I am a fund manager, so we have to be positive but some of the positives are going to get more visible in the next six months.
You always debate about whether that is the right price to pay for any of these capital market stocks or not, they have already run up so much, but is there still value on the table anywhere within this theme?
Deepak Shenoy: So, I will be honest. We run a company in this industry and therefore very-very heavily biased. But I still think this is the tip of the iceberg in terms of how much this industry can scale. I would not talk about who the winners will be and who the losers will be, but India is terribly under-financialized. Less than 18% of our GDP is in mutual funds whereas in America that number is more than 100%. So, to a certain extent there is a lot of room for the Indian organised financial industry to move. We are moving away from the real estate, gold, and chit funds kind of products to save into real financial products or financial products of a more regulated sort which has a lot more potential. You are seeing this happening. 25,000 crores a month net new inflows, most of that coming through SIPs.

This has not slowed down meaningfully even through the fact that the markets have corrected. We have seen more regulatory action that has fortified, so whether it is an RTA, whether it is an AMC, whether it is an exchange, or whether it is a depository all of them are getting more and more prominent in the overall structural framework of regulation.

And now it is becoming more and more easy to transact in them, to deal with them if a person dies transferring a financial product is way easier than trying to transfer say real estate or anything like that.

So, a lot of these things add up over time and fortify people’s minds into saying okay we will do this. You cannot sell half a house, but you could sell half a mutual fund.

So, therefore, people are actually getting more and more into financial products as such and the financial products themselves are investing in different things. You can buy gold through a mutual fund. You can buy stocks through a mutual fund. You can buy bonds and so on. So that way the industry itself has kind of scaled upwards.

And we are also seeing wealth management players, people who manage the money of relatively richer people even those stocks are kind of increasing in value and they are increasing in terms of growth as well, in terms of real profits. So, from that perspective we are underpenetrated.

So, yes, maybe we are overpaying for these stocks today, but a structural approach to buy them over a period of time is perhaps necessary for any growth oriented portfolio.