Naveen Chandramohan is the Founder & Fund Manager at ITUS Capital.
“The narrative on India is extremely positive today. When you speak to FIIs, they are looking at increasing exposure in India and I believe the capital flow into our country over the next three years is bound to increase,” Naveen Chandramohan of ITUS Capital says in an interaction with Moneycontrol.
When the environment for capital is supportive, this leads to positive ramifications on earnings, says the founder and and fund manager of ITUS Capital who handles investor assets worth of Rs 800 crore, backed by his more than 16 years of experience in the financial markets and 11 years as a fund manager.
The earnings growth will average 15 percent per year over the next two years, he shares. Chandramohan, like most of financial experts, believes another 75-100 bps rate hike by the Federal Reserve over the next few meetings. Excerpts from the interaction:
Which factors will help India become the third-largest economy by 2025?
The growth of any developing country has always had manufacturing at its core. I believe India is going to be no different. Today, we have multiple manufacturing supply chains moving to India across semiconductors, EMS (electronics manufacturing services), auto ancillaries and speciality chemicals.
As the growth of manufacturing increases, this will have an impact of consumer growth too and increase the consumer demand on the ground creating tailwinds for consumption growth. The multiplier effect of this will have an impact on credit growth – across corporate and retail. I believe these three, operated in a positive cycle will create significant tailwinds for growth.
Finally, the rise in orderbook for industrials bodes well for capital goods. The capacity utilisation is gaining momentum too. Credit growth is increasing and new investments have improved – these are clearly visible today.
Do you think the market has begun pricing in the expected FY24 earnings growth? And, do you believe the second half of FY23 will be much better than the first half?
The narrative on India is extremely positive today. When you speak to FIIs, they are looking at increasing exposure in India and I believe the capital flows into our country over the next three years is bound to increase.
While this may not happen immediately, I believe this flow would happen towards the second half of next year.
When the environment for capital is supportive, this leads to positive ramifications on earnings. The earnings growth today being priced in is at a CAGR of 15 percent over the next two years and I believe we should see that materialize with positive tailwinds in pockets.
Will the Federal Reserve reduce the size of rate hikes in next policy meetings followed by pause in new financial year?
The Federal Reserve is looking at data over the last 12 months and the economy is being resilient now. They have clearly defined their focus areas of inflation as what they are presently optimising for. So, yes, I do believe that they will continue to hike another 75-100 bps over the next few meetings.
After special Monetary Policy Committee meeting, what would be the next move by Reserve Bank of India for upcoming policy meetings?
If my base case expectation on the US is true, I believe RBI will have to act accordingly. While on the ground inflation is well within control here, this could go higher if oil prices go higher.
I continue to believe that the path of least resistance for interest rates in India is higher too, currently. I believe the market is a bit conservative in its expectations around higher interest rates on the ground.
Are you bullish on discretionary consumption space?
The discretionary consumption spends in the urban market is currently growing at 23 percent in the last year. This is evident from earnings as well as growth across sectors which are direct beneficiaries – be it Titan which has seen its highest PAT margin in the last 20 years, or urban malls which have shortages for space and are seeing price increases being absorbed, consumption growth is robust. One needs to appreciate that the market is forward looking, and valuations reflect this optimism today.
Do you think the value is emerging in PSU stock which has outperformed the broader themes by superior margins on a YTD basis?
The question naturally lends to a discussion on what value is. If value is defined by the growth they are seeing versus the multiples they are trading at, there is no doubt that the sector is cheap – across banking, energy, infrastructure etc.
PSU tends to do well when inflation goes higher and the central bank balance sheet improves (through better revenue collections – GST, tax, e-way etc) and growth on the ground picks up. At Itus, we not only look for growth but more importantly, capital allocation and reinvestment and would not want to invest in PSUs, but I can see why investors would want to buy PSUs today.
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