Nikunj Dalmia: We have seen a bumper budget session, isn’t it? The kind of Bills that have sailed through — 14 bills in Lok Sabha, 17 in Rajya Sabha — that is something very encouraging. Won’t it have an impact on the markets?
Abhay Laijawala: It was. But a lot of positive may have already been discounted. One must note that the market has surged over 25 per cent since the 2014 election. It has, more or less, moved in a single direction. Therefore, a lot of good news is in the price. Hence, investors now want to see the reforms translating into earnings, industrial production numbers.
Nikunj Dalmia: Until now, we were seeing more of a PE expansion rather than an expansion in earnings. But, if we look at the outperformers — be it pharma names or some of these five-digit stocks like Eicher MotorsBSE -0.03 % or Page Industries — even though they are expensive, no one is letting them go; they are going up. What explains this trend?
Abhay Laijawala: That is right. Stocks that satisfy the criteria foreign institutional investors (FIIs) were looking for, have been the drivers of the market almost all the way till November of 2014.
However, since November, domestic investors too entered the market; they led a rally in the midcaps. But, as far as the large-caps are concerned, FIIs are avoiding them; they want to be sure on the earnings, corporate governance and even on catalysts’ front. Therefore, wherever they are finding certainty, they are buying into those sectors/stocks. Wherever, there are less of corporate governance-related issues, the risk is that those stocks have the potential to get richer in valuations.
Nikunj Dalmia: Are long-only funds ready to go down the ladder? I am asking this because long only funds tend to go not beyond Nifty 50 stocks. Will they look broader, let’s say the top 100 names? These funds have not gone beyond HDFC or HDFC BankBSE 0.62 % in the financial space, a TCS or InfosysBSE 2.68 % in the IT space and when it comes to pharma, Sun PharmaBSE -1.70 % and Dr Reddy have remained their preferred picks?
Abhay Laijawala: Many foreigners who understand India well have recognised that the next big drive would be seen in the midcap segment. Therefore, we are beginning to see that many of the experienced FIIs are willing to go beyond the market capitalisation cushions.
We are beginning to see that change come through. You have got to break down FIIs into the ones who understand India very well and have years of experience with them, and the ones who are new to India.
In the last three to four months, we have seen a completely new set of foreigners come into this market.
These are the global funds. They are basically benchmarked to MSCI World and MSCI International indices; they could not ignore India.