And on the valuation side, looking at the kind of valuation the bonds are trading at, because bond yields are continuously falling and at the same time after this consolidation phase and also the ample liquidity that we have in the market, so that gives us hope that at least downside is capped at these levels and upside will depend on the earning trajectory that we see going into next year.
Give us some sense that sectorally where are you finding margin of safety at this point in time though the markets, you are sensing them to be a bit of rangebound, but sectorally where are your biases?Dikshit Mittal: Sectorally, we bullish on industrials and capital good sector and within that also the sectors or companies which are more exposed to the power generation, transmission and distribution sector, at the same time companies who are into manufacturing and doing some kind of import replacement or electronic manufacturing, these are sectors that we are betting on. And in terms of consumption, companies who are into catering to upper middle class or affluent part of the Indian consumers, those companies should do well and partially, selectively on the domestic pharma that we are bullish.You just spoke about your preference for financials and industrials and that also dominates your portfolios as we see. But what is your outlook on these for the rest of FY26 given you were just talking about how Q4 performance has been better than expectations? Are you looking to make any changes or any new sectors that you are looking to add to your portfolios?Dikshit Mittal: Yes, so coming to financials, we have been very selective. So, in the recent results we have seen many banks or many NBFCs have seen some pressure on the NIMs and that can continue going into next two quarters also because we are into the rate cut cycle, so they are basically liability test to get priced in earlier than their assets. So, we are quite selective in the financials, but private financials as well as the NBFCs which are into secured lending space they should do relatively well next year. And industrials as I mentioned, we are bullish selectively industrials, one is some of the companies who are export oriented, who are well entrenched to the global supply chains as well as companies who are catering to power generation capex as well as the transmission and distribution capex, so there we are bullish.
And incrementally, we are looking to find some opportunities, companies who are into manufacturing space, electronic manufacturing, or some of the contract manufacturing space. So, these are the few sectors which we believe can do well over longer term and we are looking to find some of the opportunities in these sectors.
You just spoke about the domestic pharma companies. Within that, are you biased with the CDMO plays because of late, though the generic companies have delivered an okay set and there is uncertainty that still prevails with respect to the US outlook, but CDMO companies have done very well, but the other fact is that they have been trading a little higher. Given the growth outlook, the higher valuations are they justified?Dikshit Mittal: Yes, so we are more inclined towards the CDMO companies than the generic companies because generics there is lot of pricing issues as well as some regulatory issues also in the US. So, in the CDMO space, I agree that valuations are slightly more expensive, but there is large opportunity ahead of these companies because India’s market share globally in terms of contract manufacturing for the patented molecule manufacturing is very-very low. So, India has been trying to gain some of the supply chain shifts which are happening globally.
So, to that extent market is trying to discount that, the kind of scalability these companies have over the next 5 to 10 years. So, we are on the lookout for these kinds of opportunities and companies who already have strong relations with the global innovators, who already are doing some kind of work with them and there is high probability that incrementally more business can come to these companies over next two to three years as a supply chain get realigned. So to that extent on structural basis we are positive on this space on the CDMO.
And on domestic space, obviously, companies who are not supplying to the US but catering to the domestic consumer, those companies have much more stable earnings profile, much more stable growth profile, and margin profile is also quite strong. So, to that extent these are the two sectors in the pharma that we are bullish on.
Just before this you also mentioned that you see long-term scope in the power space, so in that particular segment within that space I want to talk to you about the clean energy space, just want to take your view over there, especially what kind of impact do you see from the new US tax bill that just came last night, so what is the impact that you see from that one, some of the shares have been seeing quite a downtrend in trade today.Dikshit Mittal: So, on clean energy side, one has to be very-very selective. The companies who have some kind of edge either in terms of technology or cost, those segments should be looked into. But the companies who are solely dependent on tax arbitrage or maybe subsidy arbitrage, those companies will remain risky to invest into from a longer-term period. So, we will be more inclined towards the companies who are supplying components in this renewable space or the companies who are users or maybe who are the beneficiaries of this trend rather than investing to companies who are some sort of competing globally with Chinese or other countries where overnight things can change in terms of cost structure or tax structure, I think we will be more inclined towards the companies who are not dependent on these kind of tax arbitrage.
We did talk about some of the sectors that you are bullish on, but which sectors you are not comfortable with at this point in time, where you would like to advise our investors to stay away from some time now?Dikshit Mittal: So, at this point in time considering the global growth uncertainty, so we are not so much sure of the global cyclical. So, the companies who are exposed to the global economic activity and they are into commodity cycles kind of things, so we will be avoiding those space and we will be more inclined towards domestic focused companies or even export oriented companies who have some edge in terms of technology or cost advantage and all these things, but global cyclical we will avoid at this point in time.
