Cutting through the noise surrounding India’s buzzing IPO market, he explains why Aviva is choosing to stay on the sidelines as valuations soar and why he believes the secondary market currently offers far better opportunities for long-term investors. Edited Excerpts –
Q) Thanks for taking the time out. We have seen fresh momentum in markets, which pushed benchmark indices higher last week largely on trade deal hopes. How are you reading all this?
A) It is my pleasure. Yes, the markets saw some renewed optimism and then gave back some of it. The market has seen time correction in the last one year ending Sep’25, of course with a lot of volatility and intermittent highs and lows. The tariff related uncertainties contributed to the volatility starting from the “liberation day.”
The news flow around tariff since August has been adverse to India and every incremental news has been met with volatility. In my view, we seem to be making some progress but with the regime in the USA, nothing is done until it is done.
I would rather watch for the evolving geo-political alignment and how we navigate this. So far it has been only on the goods trade but there are ominous signs that this may spill over to the services. The first order impact of the goods tariff is not expected to be very significant for the listed space.
While we seem to be navigating the goods tariff with counter domestic stimulus like GST 2.0 and other support measures for the affected sectors, any adverse moves by the USA on the services could have serious impact.Our government has been tactful while maintaining our long-term objectives and I am hopeful we will reach a solution soon. Our diversified equity funds in the ULIP space were tilting heavily towards the large caps in the last one year and that has helped us weather this correction well.Q) Precious metals, which broke all records, cooled off a bit in the past few weeks. Do you see further weakness, or is it just a pause?A) The precious metals particularly gold is historically believed to be a good hedge against inflation, uncertainty and in India against the currency depreciation additionally. Indian households have always been great believers in this.For the past few years, the global central banks have also been increasing their gold holdings driven by the fear of US dollar currency assets losing value and some bit of trepidation around the political ramifications on these holdings in times of geo-political uncertainties.
But this year, i.e., in 2025, the data does not seem to suggest any major increase in purchases by the central banks.
So, this makes me believe that the run in the prices of precious metals may be partly due to these being treated as another momentum asset class by the investors. Watch out for lab grown gold, which if successful, can disrupt and challenge the scarcity premium.
Q) The US Fed seems to be on an easing spree with the recent 25 bps rate cut. How would that impact RBI policy back home and equity markets?A) The Fed has been very calibrated, pausing almost a year after the initial cuts and now after 2 cuts seems to be guiding the market hawkishly. They have twin objectives of inflation and employment.
Our own central bank has been very supportive of growth while maintaining vigil on prices. The recent monetary policy, in my reading was very dovish leaving a possible cut in the December meeting open. Lower rates are good for borrowers and hence the consumption stocks.
For the banks though this may mean some medium-term margin pains, whereas the NBFCs largely be less affected or some benefiting.
Q) Most of the Nifty50 companies have come out with their results. How are you reading into numbers, management commentary, and the revival of earnings?A) On muted expectations, companies have largely delivered well even when you strip off the commodities space that has done exceptionally well. More importantly the commentaries have been encouraging.
My sense is we are close to the end of earnings downgrade cycle. That bodes well for the outlook. Banks have reported decent numbers and the asset quality issues that we saw in certain pockets for the past few quarters seem to have been contained.
Capital is flowing into this sector. We have to see how the credit growth pans out. The recent RBI measures to ease many lending norms should help. However, we have to watch out for the underlying credit demand given there are other avenues of capital that are easily available like equity, NBFCs, boutique infra lenders and so on.
While there are some green shoots of private Capex reviving, there are enough internal accruals and other avenues of capital. NBFCs on the other hand, some of the well managed ones, seem to have grown and weathered the cyclical headwinds.
Even the margins have either expanded a bit or have been protected. On the consumption side, while the GST induced demand may not have fully flown into the Q2 numbers of Auto and other consumption related stocks, the subsequent business updates and management commentaries are very constructive.
One has to, of course, see if the uptick sustains in the medium term. IT numbers continue to be tepid in the large cap space. But their problems are different.
Q) Also, do you see any red flags that investors should track or watch out for in the next few quarters from the earnings?A) Investing is all about risk management. The key risks to earnings could emanate from headwinds to demand. I am not saying this is going to happen but at this stage we have many things going well for us but since you asked me about areas of risk, I am mentioning few potential areas.
The evolving geo-political situation and the tariff related uncertainty could spill into services, employment and hence the aggregate demand. We at Aviva always advise our policyholders to stick to their asset allocation and have a balanced portfolio.
Bonds after delivering very good one year returns in Apr cooled off. After few months of tepid performance, we believe, at currently obtaining long term yields, bonds may give decent returns in the next year or so.
Q) Which sectors are looking attractive now, post Q2 earnings?A) As long-term investors, we continue to like the consumption theme. Financials space has many opportunities. Domestic focused health care, pharma companies offer some structural plays. We like utilities and defense space too.
Q) What is your view on the recent wave of new listings on Dalal Street? Are there any interesting names you’re tracking? Also, given that most IPOs leave little on the table for retail investors, do you think it’s better to look for opportunities in the secondary market?A) Let me step back a bit. The global AI trade is kind of raging and with India largely being left out of this, the foreign flows are negative for us. Our own valuations were not cheap either and relative valuation game was also on.
I think at some stage either the AI trade will peak out or the game on relative valuation will be largely done or both may happen. Then the flows may turn positive.
On the other hand, the domestic retail investors continue their faith in the equity as a tool for long term wealth creation. Barring a few months of blip in early this year, the monthly MF flows into equity funds remained in the vicinity of USD 4-5 billion.
The domestic individual investors (directly and through MF, Insurance) now hold close to one fourth of the India market cap. So, this money seems to be supporting the horde of supply in the form new listings, QIPs etc. There are few companies that offer exposure to new areas within consumption space. You are right.
The valuations have been demanding or where they are less expensive the demand seems multi-fold. So, we are largely keeping away from the IPOs.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
