Largecaps holding steady amid midcap and smallcap froth: Dinshaw Irani

"It is not even repeating what it did in the last 25 years, which is around 15-16%. So, we are quite happy with the largecap portion and obviously very selective in the midcap space. Obviously, we are avoiding the smallcaps as of now," says Dinshaw Irani, CEO, Helios Mutual Fund.

Nobody is smiling like you after this recent correction. Everybody is crying on the street, that is clear.
Dinshaw Irani: I think there was an opportunity to buy actually, so that is why I am smiling.

Have you started buying already? I mean, you have been talking about this correction. You said, look, things are getting dangerous. Midcap had become humpty dumpty. Are things looking good now? Is it time to buy the fear?
Dinshaw Irani: We still believe that there is a lot of froth in the smallcap and certain pockets of midcap. Besides that, if you look at the overall market cap of the NSE 500, which is probably 90-95% of the market as such in terms of market cap, we have done our analysis. So, if you look at the two-third of that market cap, it still quotes at PEs of 19-19.5 times forward earnings, which is a fairly decent PE to be on. If you look at the last 15 years averages, we are at 19.

So, we are nowhere there. So, I do not think the largecaps really participated in this whole rally. It was mainly the small and mid. Actually, if you look at the last three years average CAGR for Nifty 50, it is around 13-odd percent, which is nothing. It is not even repeating what it did in the last 25 years, which is around 15-16%. So, we are quite happy with the largecap portion and obviously very selective in the midcap space. Obviously, we are avoiding the smallcaps as of now.

The store of value is largecap, but largecap is also where earnings are not great. Nestle, Bajaj Auto, Kotak Mahindra Bank, Infosys. So, why largecap when they are also falling under pressure?
Dinshaw Irani: Infosys was not as bad as the rest of the ones which you mentioned, but it was the better of the lot within these. So, as we have always said that we do not like high PE companies with low growths and earnings. I think exactly that is what happened with the likes of the FMCG pack. We were never comfortable with those, so that is why I said that there are certain pockets within that also which are fairly overvalued and these are some of them. Obviously, a few names that you other mentioned, we do not own them.

We like Infosys though and we own Infosys. But besides that, look at the IT pack. Overall, I do not think it was a problem. Basically, what are you talking about? We are talking about reasonable valuations, mid-teens kind of growths in the IT pack, which is quite okay for us.

Even in the financial services, I was actually expecting you to ask me about HDFC Bank because now one can make out how strong a franchise that was. Looking at the other bank results, you can really now take your hats off to HDFC Bank saying that.

He was always concentrating on his quality of assets and that is what played out for him totally and that is why HDFC Bank is doing what it is right now against the whole pack. So, these are the kind of names that we are always looking out for and we are fairly comfortable with the kind of largecaps we have in our portfolio.

What could be the out of jail card or turning point for this market? Could it be earnings? Could it be festival demand? Could it be global technical setup of flows, China versus India? What would be the out of jail card?
Dinshaw Irani: So, basically, I do not think earning. By the way, we have been calling this out. I mean, you can go back and check our Samir and me both, we have been calling out that March was bad. The June quarter was worse. And I think September would be probably the worst quarter, which is coming about. But frankly, I believe that December because the base for December now turns lower, because last December was the one when the real downturn in demand started, so that base itself becomes very attractive when you come to the December quarter.
So, maybe that is I would say get out of jail card, but that will be one of the factors that is the turning point there.

Having said that, FII selling. Yes, obviously, that is creating a lot of pressure on the market in terms of supply, but I do not think that FII selling is because of what is happening in China. Actually, China has seen larger selling this month than India has. India has seen some nine-and-a-half, ten odd billion dollars of selling month to date. China is around 12. I mean, last I checked on Bloomberg, it was 12. Yesterday's number I am talking about till day before rather number.

I think they are basically playing a Trump trade probably in the US, so they are going back, the money is going back to the US. So, I do not think that is an issue. And anyway, that will reverse because if India is going to grow its GDP at 10.5-11 odd percent, nominal GDP I am talking about, obviously, earlier it did not matter because we have been doing that on a regular basis. Earlier it did not matter because we did not have the scale. Now, we will probably be the third largest very shortly in the next three-four years, so if that happens, there is no way they can ignore us. So, I do not think that that outflow will continue for a while. It is going to reverse back pretty shortly.

What is the view on FMCG and consumption and consumption not only the bottom level, but even the mid-level, urban is a different ballgame altogether, but if you look at the two-wheeler sales, if you look at what the FMCG companies are saying, it looks like even urban demand is slowing down and rural has not picked up.
Dinshaw Irani: I agree totally with this statement because that is what we had called out also. When some of the FMCG companies came and said, look, rural is picking up, we happened to go through the AC Nielsen report and we realised that at the grassroots there was no pickup.

I believe that maybe just talking at the dealer level or something that made them believe that there are green shoots happening.

So, frankly, we were not too keen on the rural segment anyways. As I said that rural segment does not move the
ticker anyways because they are more of premiumisation to FMCG, but it is urban which is a concern today because urban has started taking a tank.

Once RBI starts, which I believe will be in the first half of next calendar year, infusing liquidity, cutting rates, I think that pickup should happen in the discretionary space too. So, maybe it is a wait and watch there, but frankly, we are not too keen on that sector today, but that will be a mover for the market.