'Bullish On Power Sector For At Least 3 Years' : Naveen Chandramohan On The Talking Point

Summary

The video discusses the volatility in Indian stock markets, focusing on sector and market cap rotation amidst rising geopolitical tensions. Naven Chandran, founder of Itis Capital, shares insights on managing risks, large caps, and sector performance, particularly highlighting the power, pharma, and non-lending financial sectors. He emphasizes the importance of balancing portfolios and sectors like power and renewables. The discussion also explores investments in Chinese and Hong Kong stocks through ETFs and mutual funds, advising caution and diversification. Viewers are encouraged to consider international exposure while managing risks.

Takeaways

• 📉 The markets are oscillating between gains and losses, with a possibility of forming a base.
• 📊 Despite the market volatility, certain sectors like power, oil & gas, consumer durables, and auto are performing well.
• 💡 Sector rotation and risk management are crucial for maintaining returns in the current market environment.
• 🏦 Large caps, especially banks, may not be the most favorable due to potential weaknesses in RoA expansion.
• 💼 Reliance Industries is seeing a drag on its stock due to the retail business, despite strong performance in its energy and telecom sectors.
• 💊 Pharma is showing growth potential, with a focus on sectors like generics, branded portfolios, and CDMO.
• 🏛️ The banking sector is not showing significant RoA expansion, making other sectors potentially more appealing for returns.
• ⚡ Power stocks, especially companies like NTPC, are poised for growth due to India’s transition to a manufacturing economy and the increased demand for power in sectors like AI and data centers.
• 📈 Investors may benefit from diversifying portfolios into Chinese and Hong Kong markets through mutual funds and ETFs.
• 🌍 Investors are advised to use Chinese markets as a diversification tool, not as a primary investment focus, due to the higher risks involved.

Q & A

What is the current state of the market as discussed in the video?

The market is volatile, oscillating between gains and losses, and has dropped about 4% from its recent highs. However, certain sectors like power, oil and gas, consumer durables, and auto are still doing well.

How does the guest, Naveen Chandran, view sector rotation in the market?

Naveen Chandran believes that sector rotation is crucial in the current market environment. While overall corrections are expected over the next 6 to 12 months, certain sectors such as small caps, power, and oil and gas continue to perform well. He emphasizes the importance of risk management and positioning in this environment.

Why is Chandran cautious about large-cap stocks despite their risk-reward potential?

Chandran is cautious about large-cap stocks because of the significant sectoral differences within them. He highlights that Indian large-cap stocks are heavily weighted towards banks, which he has been underweight on for four to five quarters. He is more optimistic about non-lending financials like insurance, power, and oil and gas rather than banks.

What is the main challenge facing Reliance Industries according to Chandran?

Chandran points out that while Reliance Industries’ core businesses like energy and telecom are doing well, its retail business is causing a drag on the company's overall return on equity (ROE). This drag has kept the stock from performing strongly despite solid earnings from other verticals.

What are Chandran’s thoughts on the Pharma sector, and where does he see value?

Chandran sees value in Pharma, particularly in companies with a mix of U.S. generics, India-facing branded portfolios, and CDMO (Contract Development and Manufacturing Organization) businesses. He believes that after years of a down cycle in U.S. generics, the environment is improving, and there is potential for margin expansion and M&A activity.

Why has Chandran been underweight on banks, despite positive credit growth in the sector?

Chandran has been underweight on banks because he does not see the credit growth translating into sufficient return on assets (ROA) expansion. While credit growth has been strong, he is concerned that this will not result in an ROE improvement from 16% to 18%, making him cautious about banking stocks.

What are Chandran’s top investment areas outside of banks?

Chandran favors sectors like non-lending financials (especially insurance), Pharma, auto (two-wheelers), and power. He believes these sectors offer better growth prospects and has positioned his portfolio accordingly.

Why does Chandran see power as a key sector for long-term growth?

Chandran believes that power is essential for India’s transition to a manufacturing-driven economy and the growth of data centers and AI-led industries. He prefers companies with a balanced portfolio of thermal and renewable energy, such as NTPC, to capture growth opportunities in both segments.

What are the investment options discussed for Indian investors wanting exposure to Chinese stocks?

Indian investors can invest in Chinese stocks through mutual funds like the Edelweiss Greater China Fund, ETFs like the Nippon India ETF Hang Seng Bees, or by directly buying Chinese stocks listed on foreign exchanges through brokerages like Zerodha.

What advice is given to Indian investors considering investing in Chinese markets?

Investors are advised to view Chinese market investments as diversification tools rather than core holdings. A small allocation of 5-8% of their portfolio could be dedicated to Chinese and Hong Kong stocks, but these investments are considered high risk due to geographical and market-specific factors.