“For FMCG companies, the short-term trigger may be a moderation in commodity prices and the next trigger level may occur if volume growth resumes. For now, in the medium term, we are negative on the FMCG space,” says Mihir VoraCIO and Senior Director, Maximum life insurance.


Why are the markets moving higher with all the data points like crude at $100, 10yr paper at 7% and anyone watching the markets would make the connection and say the market should be lower?
There is an element of relaxation in a way. I was just looking at Monday’s data and if you look at the sector that gained the most from Monday, that’s Bank Nifty and there we saw a significant reduction in F&O positions on Monday. I guess not all movements can be attributed to buying or selling in the spot market.

There is a lot of FII activity and of course local HNI activity in the F&O segment. Sometimes these moves are confusing, but that’s the technical support of the market. That said, if you look at the positive side, while oil is still at $100, it is no longer at $120-125 than it was two or three years ago. It’s gradually positive, which of course is good for India. People probably would have been cautious before the RBI policy too, in case something unexpected happened, but that was about as expected.

If you look at the RBI’s inflation projections for the rest of the year, they factor in oil at around $95 or $100. So roughly we can say that the cat is out of the bag. We have now become accustomed to oil at the $90-$95 or $100 levels. It is probably a bit of short coverage, a bit of caution before the RBI policy and when there is no additional negative, we are seeing short coverage.

What we are discussing today could be a short cover. Markets are looking past FY23 when LIC’s IPO will come and when other IPOs will begin. Will this theory be proven wrong again?
Why do you say that?

Liquidity would come out again because there would be a huge demand for fresh paper. At the moment we are confident because no new papers have come out, but when it starts coming out like in October, November and December, does it bring the market down?
It also depends on the situation and the circumstances under which the IPO takes place. If it’s happening in a period of positivity or euphoria, I don’t think supply is really an issue. FY22 saw a record amount of funds raised in equity markets in terms of OFS, IPOs, FPOs and QIPs. But the markets held firm. It’s really a function of how much money is there to flow into the market as we’re talking about bond yields having risen to 6.9-7%.

The fact also remains that rising bond yields have yet to translate into higher FD bank rates. This transmission has therefore still not taken place. Until the point where we see the Alternative Savings Rate increase significantly, i.e. where the retail opportunity has crossed, you will likely see money flowing into the markets stock exchanges and not in the savings banks. Short-term FD rates still do not reflect the fact that bonds have risen. As this transmission takes time, we always see SIP flows, ULIP flows continue and provide liquidity to the market.

I really think it depends on people continuing to make money in IPOs, follow-on buys, and IPO valuations. I wouldn’t be too worried about the supply; everything depends on the environment.

How do you envisage this problem of shortage of semiconductors which rages in all the automobile industry? It’s not entirely new, but will resurfacing concerns wreak havoc?
Absolutely. When we look at quarterly numbers, there will be pockets of no surprises or negative surprises because of margins. Commodity costs were expected to fall, but after that, due to the Ukraine crisis and China’s severe lockdown situation, there is a major supply chain disruption.

The graphs we used to see of container ship waiting times around the world – which had increased significantly in the Covid era – have fallen to very good levels. Again, we find that container ships have an extended waiting time. So these disruptions are a risk factor, I would say, and it’s going to run counter to the natural cyclical recovery that we expect in terms of domestic consumption.

So, fingers crossed, hopefully this disruption doesn’t last too long. Otherwise, while we were talking about short technical coverage and so on, it is also a fact that the leadership over the past few weeks has been more on the commodity side, back to the commodity game and the value game. So, as the markets go up, the leadership is different. So far, the market is not betting on the domestic recovery. The market always hedges by buying the value picks, the commodity space and the materials space.

So as long as you see this rotation happening, it might seem like the market is holding at the Nifty level, but there are a lot of underlying themes that say things are probably not so good.

What is your opinion on the market basket? Godrej Consumer has released a good set of updates regarding Q4 interim data. But on the other hand, Titan disappointed with tentative information. Which pockets will outperform within the FMCG basket?
In consumer goods, it’s a bit of a leap forward because the indicators for the rural economy are not yet very good, inflation is still not under control and the rural and low-end segment tends to be price sensitive. We have seen this in some of the volume figures for FMCG companies. So, for FMCG companies, the short-term trigger may be a moderation in commodity prices and the next trigger level may occur if volume growth resumes. So for now, in the medium term, we are negative on the FMCG space.

Are you convinced by the ITC story?
Sorry, I can’t comment on individual stocks, but in general, as I mentioned a few minutes ago, market leadership has been focused on value stocks and more on the commodities space . To that extent, some of the utilities stocks, for example, fell into the value space and, of course, most of our commodities stocks are sort of value stocks. In general, as there is a lot of uncertainty in the market, there is a gravitation towards value. This is a trend that we have seen not only in India, but even globally, which is a theme in recent weeks.

Did you want to understand where to find comfort in the automobile or would you say ignore the automobile for now because it doesn’t seem to be the hottest sector?
Listen, right now the problems in the automotive segment, for example, are more on the supply side. I don’t think there is a problem with the demand situation. Given that autos in general have underperformed for almost five years, I don’t think there is any reason to have a structurally bearish view of the segment, especially on the passenger side. So to that extent if you’re able to go one or two quarters valuations are cheap due to historical underperformance and the two main concerns are the semiconductor issue and the commodity prices that have increases.

While we believe the world will return to normal due to supply chain disruptions, I believe there is a good risk-reward balance, especially in the passenger car segment. While we expect India to grow by more than 7% over the next two years, there is no reason to believe that pent-up demand for commercial vehicles is also unlikely to materialize. I don’t think there’s much scope for a big bear on autos with a medium-term view. We are positive.