How are you analysing the investing landscape? Are you broadening your radar?
Absolutely. Since Covid outbreak and the massive volatility that we saw, all the segments — be it large cap, midcaps or smallcaps — have participated. It was generally the quality stocks that were participating and then as valuations kept moving up, the rally expanded and became much more broad-based. It is the huge inflow of money from the FIIs that is keeping the markets up.
We suddenly saw almost a 12% gain in the last one month or so, thanks to the foreign liquidity. Although domestic funds have been net sellers on the other side, post election, the inflow has been extremely strong. That is the reason why we are seeing the markets at such a level.
How are you playing banks? Are you incrementally looking at mid sized banks as well or NBFCs which have rebounded very sharply?
Since Covid outbreak, we had been pretty much in retail private sector banks and we had reduced our weightages in most of the NBFCs and smaller banks. But in the last couple of months, we have been adding to our positions. We were underweight banking two months ago but now we are overweight banking and most of that overweight has actually come from some of the private sector banks and some of the NBFCs.
We were overweight on insurance but NBFCs were the dark horse where the risk reward started to become a bit more favourable as we realised that seemingly the impact of Covid probably would not be so bad and that is when we started adding to some of those positions. That is why we continue to see an overweight position in terms of the banking and financial services side of the portfolio.
As far as smaller banks are concerned, we are still waiting and watching although we have a couple of positions there. We are not adding any new positions at this stage but watching that space because typically in mid and small size banks, one has to see the numbers coming up consistently before further commitments can be made.
As far as the Principal Emerging BlueChip portfolio is concerned you have got atmanirbhar kind of plays like Dixon, Navin Fluorine. How are you reading the government announcements and the entire PLI opportunity?
The policies that the government has been framing over the last two years has been extremely interesting. I am not talking about the last six-eight months. It has been pretty much guided towards bringing back manufacturing into India. That is the reason why you saw huge tax relief for people investing into new capacities last year where the taxation rate is as low as about 15 odd per cent.
That was the first move and then, came the PLI in the electronics side. One of the main reasons why that was done is India’s electronic imports particularly mobile phones. The size of imports had actually crossed the oil import bill. That effectively is a very worrisome kind of trend and in order to put a cap on that, there was only one option to incentivise domestic production and through the PLI scheme. The government perhaps has achieved some success because a lot of global players have shown interest in setting up manufacturing units in India.
This could have taken probably much longer had Covid not happened. There is an increasing effort to de-risk from China and look at other countries. India really fits the bill and it is not just because of these incentives, even in terms of core competence and cost of manufacturing in terms of labour, power, India is reasonably efficient. But where India is not efficient is size because size or scale gives the edge in terms of costing and that differentiation is what has been plugged by the PLI schemes.
As the government has already stated, it has rolled out the PLI scheme to an additional 8 or 10 sectors and these are areas where India has particular core competence — be it automobiles, chemicals, pharma, electronics and several such areas. It is a very good strategy. It is not something that is going to happen overnight but over the next two to three years, there will be a huge amount of manufacturing opportunities within India and some of it obviously will be a share taken away from China.