dear viewers welcome to this episode of expert speaks as investors or commentators we can take any decision we like we can comment as we feel like but there is a set of people in spite of all the noises in the market the markets moving up coming down and the television reporting and everything they have to take action should I buy should I sell what should I advise my community of investors today we are going to talk to one of the most prominent voices respected Mr Tre the Bond Walder the head of equities at K Robo
mutual fund to get his perspectives on what is that they are looking at in the Indian market today and what is the message that they have for the investing Community across Globe uh let's listen to this interesting conversation he's a highly respected and very experienced fund manager stay till the end of this video there are many things you can take back home and enrich yourself this is NRI money cleaning for and I Dr Chandra Khan but your financial guide for a happy [Music] living NRI money Clinic no hype just the right advice dear viewers to
talk about what exactly is happening in the Indian stock market today what are the things that the investors must know we will be talking to guest of the day fund manager and head of equities at k robco mutual fund Mr SRI balder we have done videos with him earlier and you have liked those conversation and you have watched this in large numbers uh here again we requested him to get his perspectives on what's happening in the Indian market uh welcome to this episode sir uh thank you thank you Mr B for having us again uh
on the uh interaction and as you said we also thoroughly enjoyed the questions that you asked last time sir we have seen in the last one one and a half months time markets are in a kind of a sell-off mod we saw sensex peing out just around 86,000 then they it dropped down to about 78 79,000 then post Maharashtra elections it showed the signs of moving up it's a volatility again yesterday and the time of recording we saw a massive selloff again what exactly is happening what has changed in the Indian stock market scenario no
so I think volatility is a part of maret uh unfortunately fortunately Financial year 24 which is the last Financial year which was gone by you had four quarters or five quarters in a row where Market actually delivered almost 30 35% earnings grth and it was accompanied by relatively uh benign macro and it was accompanied by a lot of domestic Flows In Market uh so people did not experience any volatility and it was a oneway straight otherwise our belief is volatility is part of market and it's more of opportunity most of the time than a threat
having said this I think contextually what has created the volatility is two or three things directly going to the move most important factor the earnings growth uh which is the core factor which eventually fundamentally impacts the market the earnings growth has slowed down in the first half of financial year 25 uh just to put it in context Financial year 24 had Nifty earnings growth of 23 to 24% I'm just using Nifty because uh uh it's it's a number which typically people tend to know uh whereas this year first half the Nifty earnings growth is low
uh low to medium single digit uh that's the kind of deceleration you have seen in the numbers of course does it mean that there is a there is a dramatic change in the economic Outlook of India our belief is no because fundamentally what has change is more of a contextual factor which is that you in the first half had a election which impacted the government decision- making because of the code of conduct which led to a little bit of slowdown in capex government capex predominantly and second is also you had massive basically Monsoon this year
uh which led to A disruption in the economic activity and if I had to add you had basically very low number of weddings day weddings is a very large part of our economy uh probably the lowest wedding days in the first half in last probably 10 20 30 years uh as far as I remember uh combination of these three contextual factors have led to basically economy looking like slowing down significantly and as that has happened disruption because of election Monsoon and basically lack of weddings you have seen the earnings growth being far lower than what
the market estimate was on consensus basis for example consensus financially 25 earnings estimate was about 12 to 14% in the first half you already seen a 3 to 4% earnings downgrade which means probably you will end the financially 25 at earnings growth anywhere between 6 to 10% depending on how the second half plays out and this context show slow down in the economy and THS the earnings grow uh in the context of valuations which you are rich when the valuations are rich marginal disappointment can lead to volatility and that's what you are actually experiencing right
now uh sir you have answered this question but nevertheless for the sake of our uh audience I have to repeat this question again because a lot of audien has asked me this question we get to hear a lot of earning downgrades day after day fund houses after fund houses talk about it uh the question that audience is asking is is it a temporary phenomena or there is something which has really gone wrong or is it part and parcel of the market when an economy is climbing through an economic uh in a kind of a bull
market kind of a thing these are pretty normal things to happen so I think uh how I would look at it is one of course it's nobody can predict the future uh but if one has to take a gase it looks like a more contextual or more short-term slowdown in the economy as outcome of the factors that I spoke about rather than a structural slowdown because uh if I had to just tell you the example of calendar year 22 which is financial year 23 you again had a single- digit earnings growth in financial year 23
audience or and you remember it you had Nifty earnings growth of some 6 7% and midcap small cap had probably 0% earnings growth if I'm not mistaken it happens time to time sometimes because of Commodities sometimes of slowing down of economy if there were balance sheet challenges in the economy for example if the corporate balance sheets or bank balance sheets were really bad or there was some large Lage sitting in the economy then I would have tend to say that this looks more structural okay but given the context in which we are operating whereby the
bank balance sheets are probably the best that you have seen the the corporate balance sheets are the best that I'm seeing in my entire career okay of 20 years the top 4050 CR house uh people households which are again in extremely good shape a real estate sector which is not levered a government which is focused on reform and actually now incrementally first doing capex and then now incrementally focusing on fiscal uh uh deficit control and a macro which is both externally and internally so strong I would tend to feel that it is more contextual and
more near term rather than structure see one of the things that we have noticed in the marketplace is Relentless sale by the FIS that to in quite a large amount is this FIS selling is the sole reason for the markets to give up or why are the FI is selling what's the view they are taking about the Indian markets there are multiple ways to look at it okay the first is clearly yes it is a large selling in a short span of time but it is not very large if you actually look at the outstanding
Holdings that fi have okay fi have if my numbers are not wrong anywhere between 800 to a trillion dollar of holding in India it would have reduced now because of Market correction but at least 7 $800 billion of holding total holding they have sold some 10 12 billion so yes it has happened in short term and generally we are not used to it so it looks like a large hope selling but from a from absolute perspective it just 1% of holding of a investor it's like a mutual fund selling 1% of a outstanding AUM so
that's one way to look at it the fundamental way to look at it so it is not that alarming as as people tend to feel yes uh it is a sizable number but it is not a very sizable number in the context of what they hold in India the fundamental way to look at it is the FI selling started happening for two or three reasons okay first it started happening because anyways we we were relatively more expensive in the context of global Emerging Markets so when China decided to actually create a large stimulus or give
large stimulus people said okay there should be a marginal seller in India and buyer in China okay that was the starting point on I think 23rd of September if I'm not mistaken 24 September after that naturally you have corporate earning started flowing in which in second quarter in a row actually started disappointing High valuation and weakness in the earnings uh is a deadly combination for Institutional Investor to hold on to at the margin they will tend to sell what is not doing well uh so that's second and thirdly uh you had uh uh in November
the US election outcome uh which clearly suggests uh that us could be a market where corporate tax cuts T protection local manufacturing local growth energy production in us uh as a combination of all these things you can get a decent earnings growth in us and as a B also moved up so from both Equity Market perspective and from rate Market perspective most of the money that has been pulled pulled back has gone back to us and this is not a phenomenon that is experienced only in India see we keep talking about what has happened in
our country but China India Korea Taiwan Indonesia Malaysia virtually every emerging market that you talk about there has been capital outflow or last one and a half month and more so post us election outcome in the hope and belief that probably us earning zero that the margin will improve uh us broader economy had done badly so that there is opportunity in broader Market in uh us and even on debt side uh you are getting four four and a half% in 10 years G second in us and you getting probably five and a half if you
take a little bit of a credit risk uh and in equity also rils are decent so there is a capital outflow that has happened towards us it has not gone out from India and to China or some other emerging market across the market all Emerging Markets actually money has flown back to us but I was just reading a report before uh this interaction and in just one month us has received $47 billion of flows inflows which has come out of all Emerging Markets plus developed markets including Europe Japan and us so uh there is a
little bit of a risk off or risk on in us so risk off globally that's what you are explaining so combination of weaker earnings and uh uh the USL election outcome and THS the capital flows uh is leading to the the the volatility or the outflows that you are seeing but typically I always tend to believe that is the earnings what is the the fundamental Factor everything else actually comes around so if tomorrow next half we start delivering 15% earnings growth for example hypothetically the money will come back so I have no doubt on that
you mentioned about Trump's election and what it created with respect to fund flows back into the US you know there is a perception that us becoming attractive today compared to the Emerging Market why should why should I take so much risk with Emerging Market my follow-up question to you is does election of trump really impact the Indian market in the sense that we hear a lot about tariff on Imports there is restrictions on immigrations and visas to the US Indian economy has a great linkages with the US economy a lot of PES move there a
lot of the it exports happen to the US do you as a fund manager see any impact it is making on Indian economy apart from the fund flows so no fund flows is the clearly probably a larger near term and that to near term in my view impact we are not expert on that but our belief is is uh if you actually look at his past regime of five years plus if you look at the the choices of Treasury secretary and everybody else uh it is very evident that it is more anti-china anti- Mexico T
protectionism as against Sheely anti- India and I would say why we are actually uh making that hunch or making that Gess is very simple that India is a very very small part of Us's trade deficit uh China is the largest part so if you read it carefully China has almost I $ 250 to $300 billion of fiscal uh trade deficit with us so it hurts there correct uh against India India is just probably 3% or 4% of us is trade partner we have a lot of exports but entire exports of India predominant part ex a
farmer is through the services channels okay and services can't be impacted so much because in Services the problem is in Services overnight you can't generate skill sets in US manufacturing you can still help people to move part of value chain because it will be semiskilled unskilled and it is more Capital deployment rather than intellectual deployment uh in services that is not the case India is a service partner yes there will be uh in our view there's no doubt that there will be noise there will be some things which will be done uh but from a
from a context perspective we don't see it being a a big item on their agenda if you read the these guys who have been appointed most of these guys very very some are direct some are subtly actually in favor of India on two counts one they want defense and economic supply chain counterbalance to China and only India as a size given the size of India can actually provide that in Asia and thus I would really be surprised that if there is any serious damage through any protectionism to India one other thing the news that comes
from the US in the recent past has been the US fed has started reducing the interest rate and it has also given a trajectory how it is likely to uh go about in the future but however we don't know exactly what's going to happen given the trajectory of reduction of interest rate how it might impact the fund flows number one and the prospect of uh INR against the dollar so I think uh near ter because of what you are seeing which we discussed in the past yes there is a close back so also there's a
hope that the economy will become stronger and so the currency has appreciated our sense is the broader thesis doesn't change that inflation has been coming down okay ideally it would have come down much aggressively but for the strength of the US household in terms of balance sheet it has taken much longer time but if you actually look at the latest past two three months data your us CPI is already down to 2 and half% or below 2 and half% so near to their target of 2% so that has happened so actually in US you are
at 4 and a half% you are running a large real interest rate so which is effectively a tightening correct for example in India you have inflation of say say four and a half five and half five and half% and if we increase interest rate by another 100 bu that's the kind of tightening you are seeing in us right now because real interest rates in us are effectively if I take 10 years you say is like almost 300 basis point of real interest rate That's not healthy so at some point in time unless inflation surprises on
upside which looks like a low probability given what is happening on energy side given what is happening to Global deflation which China is exporting uh you're bound to see interest rate Cuts with those interest rate cuts and with us actually yields coming down Emerging Markets including India will again become attractive of course we have to deliver on our growth it's always opportunity cost decision for investors if the opportunity cost to stay in US is not much higher then people actually explore Emerging Markets if I keep getting five five and a half% in us there is
little reason to go to other Market unless it becomes really cheap or in terms of valuation or earnings actually are really superior but given the context that we are we are not changing our broader thought process that you still get those interest rate cuts and as you get those interest rate Cuts you will see basically Capital outflows towards the Emerging Markets wherever there is a growth and valuation including India that is one second is also if you actually look at us government fiscal deficit and debt to the covid has actually significantly increased so it's not
in their interest to keep the interest rates at a level where they are both from internal economy perspective and from external data's perspective because if you paying us government is paying 5% 4 and a half% interest rate which is very very high for the their topl line growth which is their GDP growth rate which is 2 and a half% correct so my my interest liabilities are really high so if you look at that I think they would rather give up the currency then giving up the interest rate because at some point in time we have
to give up something okay as as as a dater in a way they are very very large data now to do word correct so they will have to give up on the currency and so from structural perspective our view Still Remains uh which we discussed I think in last interaction also that the countries like India where the macro is not a challenge okay and local growth is better the inflation is structurally coming down uh versus a economy like us where basically there is a lot of debt and debt has only gone up okay and they
have very high interest rates they can't have lower interest rates and strong currency so at some point in time you will get basically currency one in the zone and then appreciating or medium term rather than depreciating yes it will be country to Country specific I'm just picking this in Indian context coming back to the uh domestic side one of the things the observation that is made is government is not spending enough has government managed its Finance well and they reduced the spending by the government is it the reason for uh demand coming down how do
you expect the rest of the year to pan out with respect to government spending I think there's a single largest reason for the economic activity slow down and translate into corporate AC earnings growth slowing down but the question answer to the first question whether they have slowed down they have not abruptly slowed down there is a thought process around how government is actually functioning so if you look at last five year government spending CAPIC spending has been growing at upwards of 15% C which is clearly government through covid has been spending on economy and particularly
on the capital go infrastructure Investments and infrastructure very very aggressively but there Comes A Time When government has to focus on fiscal consolidation and that's where if you look at Financial year 25 they said we don't intend to continue to spend at 15 to 18% CHR incrementally but there is a large spending that is already we have done now it's time for corporates to come in which is crowding in of private capex versus the government capex this is where they have put financially year 25 capex at 10% or 11% or 12% growth versus the uh
17 18% growth that they have delivered over last four years now within that whatever 10 12 13% growth that they have have projected for financial 25 and 11 lakh CR is the total number the first half has been weak because of election and wo so most likely the second half will be far far stronger because they have budgeted number of 11 lakh CR rupes they might fall short by 50,000 or a lakh but at least they will end up spending probably closer to 10 lakh or a ports of 10 lakh that's that's the consensus uh
estimates as of now so will government spending come back yes of course it will come back because it is part of budget so it's not as if government has not spend in first half which means or spent not not spent it there spent less than what is estimated it doesn't mean that in second half they will not be aggressive they'll have to be aggressive in the second half in terms of spending and that's where this view that yes the near-term earnings have gotten impacted but as government spending increases as the weddings come back as the
monsoon is passed and you f you and fourth quarter is strong for lot of uh particular sectors B2B sectors you will have earnings actually gradually improving from where you are seeing in the first half Mr s Baler the present government has been in power for last 10 years during these 10 years have you observed any changes to the current account of the country towards an improvement as years passed by is there a perceptible change the way uh the current account is behaving to what it was in the past clearly I mean I think the one
Focus from this government and that that is sometimes that looks not so great in near term but it is it is actually serving a big purpose for country is that actually you're bringing in macroeconomic stability uh if you actually look at the entire last 10 years the consistent focus of this government has been supply side reforms and why do you do supply side reform why do you do capex because it helps you to bring down sustainable inflation in the country okay it reduces the friction in the economy so that's one second has been on external
front trying to actually ensure that whatever is in internally controllable which is you can't control oil price but what you can control is you start using more and more Renewables and actually transition the entire economy towards Renewables which reduces your energy dependence on lot of the uh external factors which consistently they have been doing third thing is actually in lot of segments bringing in certain basically kind of let we put it in E easy manner less friction in lot of services whereby the service exports have started going up and lastly uh along with the infrastructure
actually through PL and through corporate tax cuts and through several import tariffs uh ensuring that you have a ecosystem whereby you become part of the global manufacturing supply chain because ultimately your external balance also gets impacted along with energy by the kind of imports that you are take for example simple stuff like mobile why should we be importing so much at least a mobile which is probably with less features up to 20,000 30,000 per unit we should be able to manufacture locally all those things and not only electronic Gadgets in Renewable Power in Railways in
Engineering in capital goods in electric vehicles all these things in and around PL corporate tax cuts tariff increases on certain items they're ensuring that you create a ecosystem of manufacturing supply chain which helps you to export import more and import less which again helps you on the external balance so combination of these three things transition of economy towards renewal which reduces your fossile fuel dependence uh secondly uh actually investing in infrastructure which reduces sustainable inflation and third creating policies in and around basically manufacturing which help you over time to reduce your dependence on Imports of
manufactured goods and create ecos system which has the Expos all these three things actually combined have put you as the economy and that's where I use in previous question also the thing that it is macroeconomic stability which is in Indian context it is not for all Emerging Markets which has firmly been put in place okay that policy has been very very consistent and they have not moved on these things that we want to have low inflation we want to have good infrastructure we want to have less of external imbalances and challenges uh which brings down
the inflation sustainably and when inflation comes down sustainably there is more and more investment from foreign investors over a period of time that you can get from both external and internal investors also because ultimately I'm just digressing little bit but ultimately valuation of any asset is just a discounted cash flow of future and if my cost of capital is falling in economy which is a function of inflation I get higher valuation for the same asset so fundamentally all those things are being put in place so macroeconomic stability both internally and externally clearly has been a
focus of this government throughout 10 years I I don't see any change in those policies one last question for you this is regarding the fund flows we have seen the FIS pulling out of India we discussed on that but if you look at the last one year picture of the total fund flows coming into the India the net fi flows the FDI the NRI flows is there an improvement or there is a degradation what do you see from the Forex kity of the government is it growing or is it depleting I think net De Forest
K has only grown fi flows haven't been uh great FDA has been okay nothing great nothing worrisome also you don't have to worry so much about these factors yes if it happens at a very large scale then it will be worry unless you have external challenges on CAD front the flows don't impact you so much and thankfully we are putting in place the basic building blocks around inflation around reforms around energy transition which will ensure that you need less and less dollars and we are a 85% 86% inward looking economy 14% is 15% is exports
as a part of your entire economy So to that extent yes flows can impact you but over a period of time if these basic building blocks are in place uh and if our nominal GDP growth rate remains around at 9 10 11% uh I think attracting Capital through Cycles will not be a difficult yes in short term you have all these kind of challenges I think is a challenge more related to contextual valuations in Market rather than anything else so all the things that you see in flows from fi perspective is more a valuation challenge
in the context of our Rings rather than anything else because our valuations have been stretched buing probably large caps now over last one one and a half year because of the domestic flows thank you very much Mr balder and Before I Let You Go what's your your message for the NRI Community increase allocation to India or exit now and come back at an appropriate time I think uh in India uh given that structurally there is no problem and I'll just put one number respective of governments and of course this government as we alluded to has
put in lot of focus on macroeconomic stability which means you can't lose on currency fundamentally given that context and given that for last almost 15 20 years or average noral GDP growth rate of India has been in between 9 to 11% and and earnings corporate there is at least 100 corporates who grow their earnings at 15% virtually every threee bucket there is abundance of growth opportunity we just touched the surface in terms of growth the per capita is just barely 2 and a half th000 F the basic building block which needed I think and for
a sustainable growth which is to bring down inflation in the economy and in improving the infrastructure in the economy sustainably and that has been done to a great extent in last 10 year given these things I think uh uh investors should only allocate more of course they should consult their individual advisers but if you have goal which are medium-term a consensus earning growth of anywhere between 12 to 15% in India is not something that is uh a challenge and if that kind of earnings growth coming one should expect good outomes or medium term and to
that extent one should keep allocating to this country because there is a growth there is a capital efficiency valuation is the only challenge to compens for that people should use basically the corrections or years like this where there will there will be sideways movement in our view mostly consolidation P Price time time price correction one should use this to actually correct their allocations if they are on the lower side for next 3 five years that's the uh message to investors I don't think there is anything to worry on macro or micro fault on a on
a structural basis thank you very much for your time sir it has been great talking to you and you have given such a confidence to the investing community in the NRI Community spread across Globe thank you very much for your time and we remain in gratitude to you for your kindness to come on this show and explain all these points for the benefit of our audience thank you very much sir thank you Mr W thank you thank you so much for having us dear viewers hope the video that I've have done today helped you to
understand what exactly is happening in the Indian economy from the perspectives of a fund manager and it can help you take meaningful steps the way you need to be investing in a right way if it helped you to understand all these final points please do give me a thumbs up if you are some body who is yet to subscribe for this Channel please do hit the Subscribe button and press the Bell icon do not forget to share these videos with your near and dear ones friends and relatives and on all the social media on which
you connected with thank you very much for watching this episode on NRA money Clinic I shall be back with you next Tuesday with yet another expert on yet another topic till then stay safe and Jay hin press the Bell icon for more details and subscribe our Channel [Music]
