Aisha Faridi: I remember the last time you were in the studio, you were talking about Sholai. Of course, it was in the context of defense stock Basanti’s song ‘Ki jab tak hai ja hain nachungi’. Are you finally seeing Gabbar on the market? I mean, what is the market saying now?
Hiren Ved: So we’re seeing a temporary pause in momentum, but I think that has something to do with the fact that earnings growth has also stalled. We had a very weak second quarter, but the market is responding. The first half of the year was very weak both from a GDP growth point of view and from a profit point of view. But I’m very hopeful that we’ll see some acceleration in the second half. To me, this loss of momentum is largely due to weak Q1 and Q2 in general, but also because the government has not been able to actually spend capex on budget due to the election. It’s the cause. Therefore, we have earmarked a budget of 1,111,000 billion yen, or about 9,300 billion yen per month. But if you look at the data for the first five months, it has been spent only at the rate of 58,000-60,000 billion. So spending is down 35% year-over-year or compared to budget, and I think that, apart from other reasons, is causing a slight slowdown in the economy.
Ayesha Faridi: So it’s a domestic perspective. FIIs are not friends of India anyway and have not pumped money into India in the past one year. However, in the past month alone, around Rs 100 crore was sold. We’re in a pinch now because the market is weak and unstable. What can explain that?
Hiren Ved: Well, in part, it’s also the fact that China has stimulated its economy massively. Looking at the total economic stimulus package since April 24th, it is approximately $800 billion, equivalent to 4.5% of GDP, which is an extremely large stimulus package for China. However, I think recent data shows that not only money is flowing out to China, but also money to Japan. So foreigners are still looking for a better entry level to get into India and it hasn’t been an FII-driven market in the last few years. It has always been a domestic flow-driven market. It’s just that the intensity of sales over the past month has been huge and it’s reflected in the numbers. When will it change? It’s everyone’s choice. At some point, we cannot ignore a huge market like India because there is no structural growth left in other parts of the world. So if you want growth, you either have to borrow more or stimulate the economy, and that’s where the growth comes from. If you want widespread growth, India is the place to get it. So eventually they will come.
Ayesha Faridi: But how hard has the HNI, super HNI fraternity been hit after the recent market decline?
Hiren Ved: You see, no one likes to lose momentum. So everyone was obsessed with the fact that for the last four years, there had not been even a 5% correction in the Nifty. There is currently a 7% correction and this is what people were looking for to put their money into and the market is giving you a Diwali sale offer to come and buy…
Ayesha Faridi: No one has that courage.
Hiren Ved: It happens all the time. That always happens when prices are rising. When the price is too high. I don’t know when it’s getting fixed, but I think it’s going to get fixed a little bit more and people just keep waiting. But to be fair, people are generally committed and invested in the market. It’s not that people aren’t investing in the market. So there are always questions when you want to bring in incremental capital, but it’s bound to happen. When the market starts accelerating again, money will flow in again.
Aisha Faridi: But in some ways, it’s been an eye-opener, hinting at earnings season and what you mentioned earlier. Certainly, putting aside valuations and associated estimated fluctuations in stock prices, banks, for example, have always known that deposit growth was going to be a problem, and it’s happening, and it’s very is noticeable. The story is also becoming more like a car, as every sector of the banking and financial industry revolves around completely different themes. How are you currently considering opportunities and risks within your financial cluster?
Hiren Ved: So when it comes to private banks and the financial industry, we have had a broad anti-consensus. There is very little exposure there. Everyone likes private banks. We think it’s better to buy capital market plays than bank stocks. And it got us thinking: Could FY22-23 have been a perfect year for banks? It had the highest NII, the highest credit growth, and the lowest credit costs.
Despite this, bank stocks failed to deliver results. So I started wondering why bank stocks aren’t moving even though I have the best of the three variables. So the problem is, on the liability side, as you rightly stated, it’s becoming harder to raise deposits, and on the asset side, the most profitable segments are credit cards and unsecured lending, and significantly If there is significant growth, the RBI will be very concerned.
So the RBI, which is the most profitable sector, is putting the brakes on, and on the debt side, it’s going to be difficult to raise deposits unless deposit rates are raised significantly, in which case NIM will be affected. You will receive. My sense is that I believe capital markets are better suited for this cycle. Because you need to keep track of where your money is.
Therefore, if an individual household budget manager does not keep money in savings but keeps money in SIPs or mutual funds, it is better to buy capital market plays and they are better than betting on banks. We’re doing much better.
Aisha Faridi: That’s exactly why, but don’t you think most of that story has already unfolded?
Hiren Ved: Don’t you think capital markets can compound at 12%, 13%, 14%, 15%? So my point is, when you’re playing against the big private banks, what kind of growth are we having? Basically, it is the growth of mid-teens, but not everyone is able to achieve such growth. ICICI is probably an exception.
Axis may have succeeded. However, neither Kotak nor HDFC have been able to achieve such growth. I think you’ll get similar growth with capital market movements, maybe more volatile, but it’s a pure operating leverage business so you don’t have balance sheet issues.
Asset balances continue to compound at 12%, 15%, and 18%, but incremental fixed costs do not increase at the same rate, making compounding more effective than today’s banks.
