But if I had to ask you about the risks on the horizon, what are those major monitorable that you are watching out right now that might derail the story a bit – be it in India or the US?
Hartmut Issel: I would say probably in both cases, India and the US, one of the things that we are watching is inflation because there is at least a potential. It is not our base case necessarily, but we have seen also the recent inflation numbers in India is above expectations. So, if anything gets derailed there, then it certainly restrains the ability of the central banks to cut rates on both sides, like the US and RBI. Everybody is watching tariffs these days, but arguably for India, hopefully it is a bit less relevant and for the US, not so relevant anyway. So, yes, inflation is the area to watch.What makes you positive on India? There are a few things working for us, demography is a positive; the regulatory framework is quite positive as well. What are those two or three points that make India look attractive at the moment and what is the consumption story in India looking like?Hartmut Issel: We all agree on the structural story in India, but there is always a technical element to it. The reason why up until two months ago, we were actually neutral on India was not only valuation, it was the recognition that in fiscal 24, let us say Nifty level, we had an absolute Goldilocks situation, a growth far in excess of 20% and to some extent, that was also a combination of companies raising prices in expectations of input prices rising and input price in many cases actually fell. We had a one-off. This type of earnings growth is not sustainable, even in India, not on that magnitude anyway. Sure enough, our forecast was, it will not repeat in FY25 and it did not. Since a couple of quarters, it has appeared unsustainable. But here is the technical upside beyond the structural one. A number of sectors are growing close to zero, which is quite unusual for India and consumer is one of them. Big oil and gas is another one. Financials can grow below the potential and we are in the middle of it. By the middle of next year, you will likely see an uptick, a re-acceleration in about 80% of Nifty’s earnings weight. These sectors are affected. These sectors are accelerating. So, beyond the structural story, which is certainly there, and as long as India grows above 6%, consumer cannot grow zero percent for two-three years in a row. So, yes, there are interesting opportunities from a technical point of view, maybe seven-eight months out, but it is time to position for that ahead of time.
Are you looking at just investing into Nifty or the largecap stocks or are you recommending them to go down the ladder a bit and look at some of the select midcap and smallcap names as well? Are you going for a basket approach or a selective approach? Are you going for direct or passive?
Hartmut Issel: We would probably steer more towards the largecap side. Valuation growth, risk reward, if you will, looks better on this level. Within sectors, I think consumers at zero growth for me is a very clear opportunity. Financials also, especially banks, also provide opportunity as they have been a bit of a laggard for the longest time.
Where we may stay away is the two-wheeler space and two-wheelers of many of the companies have just peaked in terms of revenue or earnings momentum and that is probably going to be a multi-quarter trajectory. But on the downside, maybe also with earnings downgrades, the valuations do not get reflected. If you need some funding for some of the other sectors that I mentioned, that might be a place to look at.
