More opportunities in logistics, core infra in H2: Jaideep Goswami, ICICI Sec

In a chat with ET Now, Jaideep Goswami, Head Institutional Equity, ICICI Securities Ltd, says doesn’t think foreign investors will sell in a big way. Edited excerpts and one should look for buying opportunities in both largecaps and midcaps. Edited excerpts


ET Now: The world is getting obsessed with global liquidity isn’t it? Anything which has got to do with a policy event or liquidity event, we are simply mapping those events.

Jaideep Goswami: Yes absolutely. I think this is a very important issue for the market given the way central bankers have printed currency over last seven-eight years. This is a time, obviously Fed had taken one hike but further hike was not expected because the data from US was fairly mixed but yes if Fed actually does increase the interest rate now, there will be a near term pressure on the market and the important point to keep in mind probably is that domestically speaking there are lot of things going for India right now and it is one of the country which has held up its currency quite well.

If you look at the current account, it is getting into SR plus positions, so to say, given the demand sluggishness. Oil in spite of tie up between Saudi and Russia may not go up significantly above $50. Given all these backdrop, I think this weakness will be an excellent opportunity for long term investment purpose.

ET Now: So what in the near term are you thinking that is going to happen considering this is a market which was just about gearing up to touch new high? How much of an aggravated correction can we see from the current juncture considering today we are down only a per cent and a half. This is not a big, big sell off, is it?

Jaideep Goswami: The stance foreign institutional investors take for Indian market will be an important metric to judge how low it can probably go. We have seen that GST is taken as a very big structural reform by foreign institutional investors among various development that has taken place in our country. GST is taken as a kind of high watermark, a structural reform. So foreign investors will not really sell in a big way according to our assessment of the situation.

We are getting quality offerings of large-sized coming out of Indian markets so investors are making money. So they will continue to remain engaged and look for buying opportunity in my judgement, both in largecap and midcap categories. Other important point is that so far if you see in the economy, the consumption segment of the economy has been doing very well. It is holding up the economic growth so to say. But I think the other leg namely the investment leg has started showing some sign of life at least in certain patches.

I expect in the second half of the year we will see more improvement happening in that space. So, that is one area where there are valuation mispricing and you can get investment opportunity in plays which are in logistics and core infrastructure with money moving in a little bit in these areas.

ET Now: Whatever we are discussing today can get trumped and that will get trumped by Donald Trump. Markets are bracing in that it is going to be Ms Clinton, that is what Wall Street is pricing in, that is what financial markets are pricing in. Never say never that is what I have learnt in financial markets. If the outcome of US presidential election is not as per markets assessment, could that lead to a bigger selling? I mean more than Fed do you think it is US presidential election which is a great problem?

Jaideep Goswami: The bottom line is we are heading into a quarter which will be probably a lot more volatile than the rest of the year and obviously US presidential election will have an important bearing in terms of how the policy change has taken place in core matters related to trade and all which Trump has articulated.

So it will be more driven by sound bites post presidential election which will determine whether there is going to be a kind of slowdown of sort in FII investments but we have to keep in mind from our point of view that the domestic savings is getting more and more channelised into the equity market if you see the inflow.

ET Now: Do you think the flows in the month of August were record high, that is what Dhirendra Kumar told us, I think Rs 6000 crore.

Jaideep Goswami: Absolutely.

ET Now: If I look at domestic flows by DIIs, they were sellers. So there was no compulsion to sell. They are getting fresh money and yet they are selling.

Jaideep Goswami: It is a mixed train in the sense you have see things in aggregate, probably insurance segment of the market is showing some redemption related pressure but mutual funds are in good hands. I think the larger-sized mutual funds are growing 17-18%, their equity AUM year over year and that is one area where I think the relative importance between domestic and FII need to be judged and I probably feel that that is the money which will kind of hold up this market, so I am very positive and I think if there is any correction in between now and December, there will time to really build a long-term portfolio in largecap.

ET Now: Where will that money find its way? Would it be again the autos and banks which have performed well or do you think there will be newer sectors which would emerge winners after this correction settles?

Jaideep Goswami: Definitely autos and banks will continue to do well. As you have seen two wheelers have really rallied after the strong monsoon spread out that has happened, large cap passenger car manufacturers are showing very good sign of growth, so they will continue to do well…

ET Now: Same like Maruti?

Jaideep Goswami: Yes.

ET Now: At Rs 5000, do you still like Maruti?

Jaideep Goswami: Yes, I think longer term this is one issue that can impact the, next 12 month performance -- capacity constraint -- because the demand side the company is seeing very strong traction, discounts are coming off, essentially their plant in Gujarat is almost ready for production so that will give a near-term kicker to the capacity availability. GST long term will be positive for the sector as well.

ET Now: So as we speak, Maruti is at Rs 5318, Rs 5300.

Jaideep Goswami: Yes.

ET Now: Can it go to Rs 7000 in next 18 months?

Jaideep Goswami: See, of course, we have to keep in mind the one important factor is how yen behaves vis-à-vis US dollar because that is one of the imponderables for the stock price performance and another factor is the capacity constraint near term. So we have to take probably two-year view to really judge how Maruti will play out. It has given excellent returns but I would remain positive in this particular space. Private banks continue to remain sweet spot. The PSU banks, we probably have to do cherry picking. I think the asset quality problem will continue to dog that sector for next 12 to 18 months.

ET Now: So stick to the leaders, the SBIs, etc?

Jaideep Goswami: Yes and as I have said that the investment segment of the economy will continue to throw up new ideas which are near term beneficiary of GST implementation, so logistics clearly stand out in the PSU space. You have Container Corporation and the other players out there. So obviously this is one which could continue to do well. Seventh Pay Commission…

ET Now: So logistics is your new idea? You like Maruti, it was a great call happen. You have been liking Maruti from 2500 now. You have like Pidilite, the stock has gone to places. ITC has recovered from the recent lows.

Jaideep Goswami: Absolutely.

ET Now: Infosys, I am bit shaky…

Jaideep Goswami: Yes.

ET Now: These are some of your recommendations we have discussed. What I want to understand from you is that what is the new theme, the new idea, the new mega trend?

Jaideep Goswami: The new mega trend is what has not been playing out into the system. See we do not really talk about the investment segment of the economy at all. Probably road space, road EPC construction companies, road related players which are in asset owner, you might be aware that a new liquidity instrument is coming to the market. So one has to watch out how road builders are really going to play out in the near term. Obviously exchanges are going to get listed new NSE and BSE. We have a very strong recommendation in MCX so that is one other company we would like to focus on.

ET Now: Do you think now every correction will be called a bull market correction?

Jaideep Goswami: See India is in a unique phase of early phase of bull market. So to say because of the earnings growth that we are going to see in our country but it is in the backdrop of a global weak demand situation so we may see a contrasting picture of global markets not doing so well and India holding up essentially because India’s currency is holding up well, India economic growth is likely to pick up and structural reforms are happening so everything is going for the country so essentially money is likely to come in a relative sense to India more than other countries. So I would think that…

ET Now: Why are we not outperforming so massively, I mean I look at Brazil and Russia those are markets have done better than us. If I look at flows, we are just about middling there, it is not that oh! $20 billion has come in FY 2015 or $10 billion has come this year. I buy your argument and everybody believes that India is a special situation stock. But I do not think the love affair is there. I mean for a special situation stock, we should be enjoying like loads of liquidity.

Jaideep Goswami: One factor is, of course, how many largecaps stocks are really available for you to buy into a market in a very big way? One has to see largecap stock availability also as a factor driving this global liquidity in terms of absolute quantum and also the global sized offerings from the economy is also a very important driver of money into the market as well so these are the two clear differentiators between India and China.

But probably on the margin, there is a change happening to the sentiment of foreign investors putting more faith and more long-term weight on India now vis-à-vis China and it is a long term trade which will play out. From our point of view, I do not think really we have shown a substantive increase in economic growth in real data point as yet so probably we are waiting for that firm sign for another round of big inflow coming in.

ET Now: What could be a dark horse, I am not talking about fund manager, they are clients, you will not tell me your favourite fund, but tell me dark horse in terms of a stock where the risk could be 10-12%, volatility could be 15-20% but you think that it could be 50% higher in two years?

Jaideep Goswami: See logistic space I think present opportunity, obviously I will not be able to mention specific names to you but one has to find there are stories…

ET Now: You said Container Corporation.

Jaideep Goswami: Container is in the largecap. In the midcap space, there are plays which can give you that kind of returns, I mean that type of opportunity is available.

On a different note, I think you have raised an important point on whether large funds really have the capacity to buy in a big way into stocks because this is an emerging trend that we see from our point of view and the money under management of mutual fund industry is growing very sharply but compared to that the relative size of float available from quality company is not growing in proportion and this is posing a dilemma to the domestic investors so to say so that is one factor which is driving lot of flow into the largecap by default because they are the stocks you can buy in large size…

ET Now: And these guys do not dilute. Some of the pharma companies they do not dilute that is the problem.

Jaideep Goswami: Yes, that is one factor. I feel the midcap valuation is getting driven up that is one of the key factors which is driving this issue that the money under management is lot higher than the available float from midcap companies which one can buy into to have a meaningful exposure in those stocks.