What are you seeing in terms of the midcap, smallcap side of the market, especially in the PMS and HNI segment where you constantly invest as there is extreme pressure of redemption?
First, we are not seeing any redemption yet. In fact, most of the conversations happen around the topic of whether this is a good time to increase our exposure? Of course, different fund houses will have different experience but by and large, it is not and there is not so much pressure.
I do not know what happened yesterday, maybe some margin calls went out and this kind of selloff took place. We would say that perhaps the capitulation stage is somewhere near.
In terms of the midcap and smallcap market, is it a mix of PMS, HNI, retail and very low liquidity that you are seeing in a sharper correction?
Yes, for sure liquidity has dried up and anybody pressing sales into this kind of illiquid situation is causing a greater percentage of decline. One just needs to look at the charts to see the kind of declines that have happened, 40%, even 50% is not unheard of. So yes, we are going through a tough phase as far as small, and midcaps are concerned.
What are you advising your clients now? For those with a certain amount of cash to deploy, would you ask them to sit on it and wait patiently because there will be better levels, or would you suggest nibbling into the markets and if yes, which pockets?
We are in favour of nibbling and in fact post yesterday, it would make sense to do a little more than nibbling. One overhang on the macro is that the US housing market is yet to fall. The equity, bond, crypto are facing trouble but housing is still intact.
So, over the coming months, we will see a fall on the housing side also which will have its own impact on the rest of the world. That is a kind of overhang we are wary of. That said, when one looks at the bottom-up in many of these small and midcaps, we can find interesting value.
India is not as impacted by inflation as perhaps the US is and to that extent, even the stocks are much better positioned. Speaking of places where one wants to invest, banking and BFSI are interestingly poised.
Many of the insurance companies have also corrected quite a bit and that would be an area of opportunity. Housing companies, home builders, that is where one is seeing opportunity. Logistics and diagnostics companies have corrected quite a bit. So interesting value is emerging all around.
This is a time when you should be deploying capital for a two- to three-year kind of outlook. You will get significant IRRs from this stage onwards.
Any stocks which are high conviction buys at this point of time?
No, our company policies do not permit us to talk about stocks.
Let us talk about the sectors that you have not really highlighted, that is metals as well as FMCG. There is a clear sectoral churn happening. Would you suggest that perhaps the worst is over for the FMCG sector in terms of the inflation woes, etc?
Typically, FMCG companies tend to be largecap. We do not go there with a lot of vigour. But yes, we perhaps are peaking on various parameters. Food prices also could be peaking, metals have come off quite a bit and there is a kind of peaking that we are seeing. The FMCG companies should benefit from here onwards.