Indian Market Outlook With Gary Dugan Of The Global CIO Office & Niket Shah Of Motilal Oswal MF

Summary

In a discussion at the Motilal India conference, Gary Dugan, CEO of Global CIO office, and Nikhil Sharma, CIO of mpal mutual fund, explore India's potential as an investment destination. Dugan highlights India's unique position in the global market, advocating for long-term investment despite economic fluctuations. Sharma, focusing on quality growth, shares his cautious approach, emphasizing selectivity and mistake avoidance. They discuss sectors like IT, Telecom, and platform businesses, noting India's digital payment revolution and the importance of dynamic portfolio management.

Takeaways

• 🌍 Global investors are increasingly viewing India separately from other emerging markets due to its unique economic growth potential.
• 📈 India offers consistent quality growth, with a projected 15% compound growth rate in profits over the next 5 years.
• 💡 Family offices and ultra-high-net-worth individuals are warming up to India's structural growth story, especially as other global markets struggle to offer consistent returns.
• 📉 Nifty and midcap earnings growth in India have slowed, marking the slowest growth in 16 quarters, leading to more cautious, selective investments.
• 🔍 The focus for mutual funds this year is on avoiding mistakes, with portfolios being sharpened by reducing the number of holdings from 25 to around 16-17 stocks.
• 💼 IT and telecom sectors are poised for growth; while IT faced challenges over the last two years, it is expected to bounce back post-U.S. elections.
• 📱 The telecom sector is predicted to benefit from annual tariff hikes, a necessary measure for companies to manage payments for past spectrum purchases.
• 🍽 Quick commerce businesses like food delivery are expected to grow by 125-150% over the next few years, with strong adoption in Tier 2 markets.
• 💳 India's digital payment revolution is highlighted as a significant transformation, even outperforming some Western markets in this area.
• 🚗 EV penetration in India is expected to rise, but near-term profit potential lies in three-wheeler and light commercial vehicle segments rather than traditional autos.

Q & A

Why does Gary Dugan believe global investors should consider India separately from emerging markets?

Gary Dugan thinks India should be considered separately from emerging markets because of its unique characteristics compared to other countries like China and Indonesia. He is particularly confident in the Indian market and believes it deserves a long-term commitment.

What is the current stance of global investors on investing in India according to Gary Dugan?

Global investors are warming up to the idea of investing in India as a structural story for the next 5 to 10 years. They are recognizing India's ability to deliver consistent quality growth, which is hard to find globally.

How does Nikhil Kamath view the current earnings growth in India?

Nikhil Kamath notes that the earnings growth in India, as represented by the Nifty, has slowed to about 4 to 5%, which is the slowest in the last 16 quarters. He also mentions that midcap earnings growth has been about 5 to 6%, also the slowest in the same period, leading to a cautious stance on the markets.

What is Nikhil Kamath's strategy as a CIO of mpal mutual fund in response to the current market conditions?

In response to the current market conditions, Nikhil Kamath's strategy is to be very selective and reduce the number of stocks in the portfolio to avoid mistakes. The focus is on quality over quantity to ensure that there are no significant errors in investment.

Why is Nikhil Kamath bullish on the IT sector?

Nikhil Kamath is bullish on the IT sector because he believes that post-US elections, some of the challenges faced by the sector are likely to dissipate. He also mentions a healthy deal pipeline and expects spending to come back meaningfully next year.

What is the outlook for the telecom sector in India according to Nikhil Kamath?

Nikhil Kamath sees the telecom sector as one that requires tariff hikes annually, starting from the second half of the next year, due to spectrum payments to the government. This is expected to lead to strong growth for the sector over the next two to three years.

What are the key risks that Gary Dugan is watching for that could impact India's market?

Gary Dugan is concerned about a significant increase in US interest rates and geopolitical problems, such as those in the Middle East, which could lead to higher oil prices. These factors could put pressure on emerging market currencies and create a risk-off sentiment.

How does Nikhil Kamath view the quick commerce business model in India?

Nikhil Kamath is very positive about the quick commerce business model in India, expecting at least 125 to 150% top-line or GMB growth for some companies over the next 3 to 4 years. He finds the adoption in tier-2 markets to be faster and more economically viable than in tier-1 markets.

What is Nikhil Kamath's perspective on the EV market in India?

Nikhil Kamath believes that EV penetration will increase in India, but he sees a clearer profit pool in the three-wheeler, LCV, and tractor markets rather than in four-wheelers or two-wheelers, at least over the next 2 to 3 years.

What does Gary Dugan think is a big emerging theme in India?

Gary Dugan highlights the consumer sector and hospitality as a big emerging theme in India, noting the transformation in shopping experiences and hotel standards, which he believes will significantly increase the economy's growth potential.

How does Nikhil Kamath approach selling stocks?

Nikhil Kamath believes that selling is underrated in India and focuses on managing the earnings upgrade and downgrade cycles. He emphasizes the importance of not keeping the portfolio static and being aggressive in selling at the right time to avoid underperformance.