Latest news with #KrishnanVR
Economic Times
28-05-2025
- Business
- Economic Times
Is bottom-up investment strategy key to unlocking growth in today's market? Krishnan VR explains
Krishnan VR of Marcellus Investment Managers says given the current market uncertainty, investors are advised to concentrate on bottoms-up stock analysis, particularly within the mid and small-cap segments. Emphasis should be placed on identifying companies with strong growth potential, as growth is becoming increasingly scarce. Companies demonstrating consistent earnings growth over the medium term present lower valuation risks. Firstly, help us with your outlook on the markets because it seems like that the markets have seemed to be climbing the wall of worry, especially with respect to the tariff tantrum and the slower growth that was anticipated earlier. But from here on, how do you see the Indian markets performing and where is the tilt? Is it still with the largecaps or do you believe that now SMIDs are also offering some opportunity? Krishnan VR: In terms of the Q4 earnings season, we looked at the earnings performance of companies and roughly when you look at the earnings growth of Nifty 50 companies, it has been in mid-single digits. Bulk of the earnings outperformance seems to have come from banks and downstream oil marketing companies. And if you remove these two sectors, broadly earnings growth has kind of just met expectations. I would not go to sector specific commentary, we can discuss it in detail, but coming to valuations, again what I would say is when you look at aggregate indices whether it is mid and smallcap indices, when you look at the aggregate valuation, again Indian small and midcap indices are trading above long-term averages. You might argue that the valuations are high not only with respect to their own history, but also compared to largecaps or with mid and smallcap indices in other emerging markets which have similar growth if you look at things like the one-year forward price to earnings or a valuation ratio for an average stock, within BSE 500, at least per our calculation, today this number is somewhere around 33 times which is higher than historical standards and which gives an idea about the breadth of the extended valuation across stocks. So, when the recent rally in the last one or two months within mid and smallcap indices is put in the backdrop of these extended valuation, the one comment you could make is maybe the market is expecting some improvement in earnings growth for FY26, FY27, backed by an improving macro. But when I look at these valuations, it suggests that the wall of worry or some of the uncertainties around the ongoing tariff negotiations with the US, has not completely been priced in and there are also other structural issues. For example, the low wage growth in India which is impacting urban consumption as we know it. When I look at the growth outlook and some of these uncertainties and put this together against a backdrop of extended valuation, it is a worry. Given the current volatility that we have been seeing on the back of global trends, help us with some factors that we should be steering clear of and how to navigate this market? Krishnan VR: Obviously, every market is different and one can look at some points in history, but history seldom repeats but it often rhymes. So, given the uncertainty, I would strongly suggest that investors again focus on bottoms-up stories. Even when I talked about the mid and smallcap valuations, remember that mid and smallcap stocks or the mid and smallcap space in India is a very wide space. So, all the stocks excluding the top 100 stocks. In some cases, there are very long growth runways and obviously valuation should be seen in context of both profitability and valuation. So, look at bottoms-up stories, be stock specific as much as possible and at the same time focus on growth because we are at this point in the cycle where growth is going to become more and more scarce. And when growth becomes scarce, the companies which can deliver growth in whatever ways – it could be certainties of growth, it could be the longevity of the growth – become that much more valuable. So, even when you look at a valuation, there is a lesser valuation risk for a company which can deliver earnings growth over the next two-three years or even in the medium term. So, one strategy could be to focus on companies in a very bottoms-up way and on those which can deliver outstanding earnings growth. In your quant research you wish to highlight some sectors which tick many of those check boxes. Since people are finding it a little hard to find new ideas in this market construct, given the market correction and the tepidness, can you help us highlight some of the sectors that are looking good or rather building on some bit of momentum? Sectorally, where are you finding some tilt? Krishnan VR: We like financial services as such and because financial services is not just lending, not just banks and NBFCs, there is also wealth management, RTAs, and insurance. When you look at the wider financial services in India, whether it is insurance, life insurance, RTAs, wealth management, etc, they have very long growth runways. Stocks within these sectors have secular growth stories and even when you look at things like momentum, the earnings growth momentum has been pretty good. Estimates, etc, have been revised upwards over the last two-three years. So, when you look at it both from top-down perspective and even from a bottoms-up perspective, the broader financial services is definitely attractive, but our investing style is sector agnostic. We are looking at clean, well run, well governed companies with low debt, with the return on capital above cost of capital. That tends to be our criteria and you can find such companies in many sectors. We do not tend to be very top-down or take sector specific calls, but the broader financial services definitely look attractive. I also want your view on the earnings season. Q4 is almost over. Most of the Q4 earnings are out and FY26 and FY27 is when we can start seeing improvement. But when exactly in FY26 do you see improvement coming in? Could it be the next quarter like the Q2 or in the second half of the year? Also, do you think conditions like the early onset of monsoon could impact earnings in FY26? Krishnan VR: In terms of the earnings growth, the consensus is for baking in close to high teen earning growth for Nifty and this is over FY26 and FY27. Coming to your question on how this might pan out, at least for us, we see there could be two likely triggers for upgrades if at all. One could be, for example, the lower crude oil prices. India is a net importer of crude. For a lot of companies, their cost of goods or the cost of raw materials is linked to crude oil prices one way or the other. So, there would be some benefit on the margin if the crude oil prices stay where they are or even go lower. The other trigger for upgrading would be if we see some green shoots in urban demand and in my view that could be in the second half of the year if at all because we have just seen inflation that has come down. If you exclude commodities, gold, etc, the core CPI is down even below 4% now. With inflation easing and the lower personal tax outgo under the new tax regime, that would also be something that could give a fillip to urban demand and, of course, we already know that rural demand has fared much better in the last earning season in 4Q versus urban and if there is an early onset of monsoon, then it helps rural demand also to that extent. So, yes, I mean, we might see a bigger impact on the company's earnings if all these factors play out in the second half rather than the first half.
Time of India
28-05-2025
- Business
- Time of India
Is bottom-up investment strategy key to unlocking growth in today's market? Krishnan VR explains
Krishnan VR of Marcellus Investment Managers says given the current market uncertainty , investors are advised to concentrate on bottoms-up stock analysis , particularly within the mid and small-cap segments . Emphasis should be placed on identifying companies with strong growth potential, as growth is becoming increasingly scarce. Companies demonstrating consistent earnings growth over the medium term present lower valuation risks . Firstly, help us with your outlook on the markets because it seems like that the markets have seemed to be climbing the wall of worry, especially with respect to the tariff tantrum and the slower growth that was anticipated earlier. But from here on, how do you see the Indian markets performing and where is the tilt? Is it still with the largecaps or do you believe that now SMIDs are also offering some opportunity? Krishnan VR: In terms of the Q4 earnings season, we looked at the earnings performance of companies and roughly when you look at the earnings growth of Nifty 50 companies, it has been in mid-single digits. Bulk of the earnings outperformance seems to have come from banks and downstream oil marketing companies. And if you remove these two sectors, broadly earnings growth has kind of just met expectations. I would not go to sector specific commentary, we can discuss it in detail, but coming to valuations, again what I would say is when you look at aggregate indices whether it is mid and smallcap indices, when you look at the aggregate valuation, again Indian small and midcap indices are trading above long-term averages. You might argue that the valuations are high not only with respect to their own history, but also compared to largecaps or with mid and smallcap indices in other emerging markets which have similar growth outlook. Even if you look at things like the one-year forward price to earnings or a valuation ratio for an average stock, within BSE 500, at least per our calculation, today this number is somewhere around 33 times which is higher than historical standards and which gives an idea about the breadth of the extended valuation across stocks. So, when the recent rally in the last one or two months within mid and smallcap indices is put in the backdrop of these extended valuation, the one comment you could make is maybe the market is expecting some improvement in earnings growth for FY26, FY27, backed by an improving macro. But when I look at these valuations, it suggests that the wall of worry or some of the uncertainties around the ongoing tariff negotiations with the US, has not completely been priced in and there are also other structural issues. For example, the low wage growth in India which is impacting urban consumption as we know it. When I look at the growth outlook and some of these uncertainties and put this together against a backdrop of extended valuation, it is a worry. Live Events You Might Also Like: Investing strategy: Can quality help you minimize risk and maximize returns? Given the current volatility that we have been seeing on the back of global trends, help us with some factors that we should be steering clear of and how to navigate this market? Krishnan VR: Obviously, every market is different and one can look at some points in history, but history seldom repeats but it often rhymes. So, given the uncertainty, I would strongly suggest that investors again focus on bottoms-up stories. Even when I talked about the mid and smallcap valuations, remember that mid and smallcap stocks or the mid and smallcap space in India is a very wide space. So, all the stocks excluding the top 100 stocks. In some cases, there are very long growth runways and obviously valuation should be seen in context of both profitability and valuation. So, look at bottoms-up stories, be stock specific as much as possible and at the same time focus on growth because we are at this point in the cycle where growth is going to become more and more scarce. And when growth becomes scarce, the companies which can deliver growth in whatever ways – it could be certainties of growth, it could be the longevity of the growth – become that much more valuable. So, even when you look at a valuation, there is a lesser valuation risk for a company which can deliver earnings growth over the next two-three years or even in the medium term. So, one strategy could be to focus on companies in a very bottoms-up way and on those which can deliver outstanding earnings growth. In your quant research you wish to highlight some sectors which tick many of those check boxes. Since people are finding it a little hard to find new ideas in this market construct, given the market correction and the tepidness, can you help us highlight some of the sectors that are looking good or rather building on some bit of momentum? Sectorally, where are you finding some tilt? Krishnan VR : We like financial services as such and because financial services is not just lending, not just banks and NBFCs, there is also wealth management, RTAs, and insurance. When you look at the wider financial services in India, whether it is insurance, life insurance, RTAs, wealth management, etc, they have very long growth runways. Stocks within these sectors have secular growth stories and even when you look at things like momentum, the earnings growth momentum has been pretty good. You Might Also Like: Nifty up 13% from April's low. How should mutual fund investors alter their investment strategy? Estimates, etc, have been revised upwards over the last two-three years. So, when you look at it both from top-down perspective and even from a bottoms-up perspective, the broader financial services is definitely attractive, but our investing style is sector agnostic. We are looking at clean, well run, well governed companies with low debt, with the return on capital above cost of capital. That tends to be our criteria and you can find such companies in many sectors. We do not tend to be very top-down or take sector specific calls, but the broader financial services definitely look attractive. I also want your view on the earnings season. Q4 is almost over. Most of the Q4 earnings are out and FY26 and FY27 is when we can start seeing improvement. But when exactly in FY26 do you see improvement coming in? Could it be the next quarter like the Q2 or in the second half of the year? Also, do you think conditions like the early onset of monsoon could impact earnings in FY26? Krishnan VR: In terms of the earnings growth, the consensus is for baking in close to high teen earning growth for Nifty and this is over FY26 and FY27. Coming to your question on how this might pan out, at least for us, we see there could be two likely triggers for upgrades if at all. One could be, for example, the lower crude oil prices. India is a net importer of crude. For a lot of companies, their cost of goods or the cost of raw materials is linked to crude oil prices one way or the other. So, there would be some benefit on the margin if the crude oil prices stay where they are or even go lower. The other trigger for upgrading would be if we see some green shoots in urban demand and in my view that could be in the second half of the year if at all because we have just seen inflation that has come down. If you exclude commodities, gold, etc, the core CPI is down even below 4% now. With inflation easing and the lower personal tax outgo under the new tax regime, that would also be something that could give a fillip to urban demand and, of course, we already know that rural demand has fared much better in the last earning season in 4Q versus urban and if there is an early onset of monsoon, then it helps rural demand also to that extent. You Might Also Like: Don't Chase Hype: Anshul Saigal sticks to value over virality in stock selection So, yes, I mean, we might see a bigger impact on the company's earnings if all these factors play out in the second half rather than the first half.
Mint
20-05-2025
- Business
- Mint
Market risks underpriced, returns may be muted in the medium term, says Marcellus' Chief of Quantitative Research
Expert view on markets: Krishnan V R, Chief of Quantitative Research at Marcellus, believes that due to disruptive forces like Gen AI, tariffs and geopolitical tensions, elevated uncertainty will persist in the markets. In an interview with Mint, Krishnan said that due to the elevated valuations across segments, the returns could be muted in the medium term. Here are edited excerpts of the interview: Given the elevated market valuations across the bulk of mid and small-cap space and even among large caps, I think return expectations would be muted over the medium term. Market cap-weighted equity indices have delivered spectacular returns over the last five years. As we wade further into the market cycle, I think company-specific fundamentals like profitability and growth should matter more. In my opinion, given the number of disruptive forces like Gen AI, tariffs and geopolitical tensions, elevated uncertainty is here to stay. The recent market rally suggests that markets are expecting an improvement in earnings growth in FY26/27, backed by an improving macro. When seen against the backdrop of elevated valuations, I don't think markets are fully pricing in the risks of a messy, protracted negotiations of tariff and trade-related issues with the US and structural issues like low wage growth. Earnings growth for the Nifty 50 has been in mid-single digits in Q4FY25. The bulk of the earnings outperformance is being driven by banks and downstream oil marketing companies. Consumer companies are reporting weak volume growth, margin headwinds, and muted demand commentary. Difficult to comment on the quarterly outlook due to seasonality in many businesses, but broadly, we should see some margin benefit to companies from lower prices of crude oil and derivatives in Q1FY26. If we look at valuations of small-cap and mid-cap indices, then at an aggregate level, both are trading above historical averages. However, valuations should be seen in the context of growth outlook, profitability and management's execution, which is stock-specific. Because the small and midcap segment in India includes everything apart from, say, the biggest 100 stocks, it offers plenty of opportunities to pick good quality businesses with strong growth runways. Diversification is the only free lunch in investing. Hence, the ideal investment strategy should be to diversify across uncorrelated asset classes and have an asset allocation plan in place. So, if someone is primarily invested in Indian equities, they should consider adding gold, global equities and bonds, fixed deposits or even REITs/Invits to the mix. Even though post-tax returns for debt investment could be suboptimal, they ensure that investors have funds for major financial goals when they need them. It is difficult to ascribe a fair value to gold, as prices are determined by supply and demand dynamics and safe-haven status. Since Gold prices have risen around 18 per cent annually over the last five years, I think most investors should allocate 10-20 per cent to gold at this point. Because Quant models follow a systematic, rules-based portfolio construction process, they are less likely to be affected by emotions of greed and fear and biases which can affect even the best discretionary fund managers. Most quant funds focus more on risk management, for example, by constraining allocation to a single stock or sector. Further, most factor-based quant strategies typically combine multiple factors like value, momentum and quality. For all these reasons, a well-designed quant strategy can be expected to deliver consistent alpha across market cycles. Quant funds are still a relatively new concept in India, at least for retail investors. Asset under management (AUM) in quant strategies, according to a Forbes article, would be less than 1 per cent of overall mutual fund AUM or even equity fund AUM, and nowhere near other developed markets like the US (including factor funds). But it has grown faster than the overall equity AUM, and over the last few years, I have seen nearly every major fund house launch a quant or a factor fund. I think Indian equity markets are at the sweet spot from a quant investing standpoint. Liquidity has improved beyond just large caps over the last few years, and we have a 15-20-year history on which quant strategies can be tested. Overall, I feel that we are still in the early days. As data availability keeps improving, along with the means to extract and analyse data using modern computing techniques, and as existing quants build performance track records, investor awareness and flows should be strong. History seldom repeatsbut often rhymes. However, if back-test returns are the sole criteria for selecting the winning strategy, then there is a significant risk of future underperformance, especially if there is a regime change. In India, unlike developed countries, reliable historical data is available only for 20-25 years, which may be sufficient but not enough. Our approach is to back-test only as a guide and mainly to rule out a bad strategy. A well-thought-out quant model is based on sound economic rationale with room to evolve based on changing market conditions. Read all market-related news here Read more stories by Nishant Kumar Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.
Time of India
23-04-2025
- Business
- Time of India
IT stocks to recover if there's no slowdown in the US: Krishnan VR
Live Events (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel Indian IT stocks have faced significant pressure this year, with the sector's index among the worst performers over the past three years. In an interview with ET Markets, Krishnan VR, Chief of Quantitative Research team at Marcellus, discusses how concerns over US tariffs and a potential slowdown in client spending are already reflected in valuations—and why a recovery could be on the cards if the US economy holds excerpts from a chat:We have not changed our investment style. We prefer to invest in clean, well-run businesses with strong balance sheets, returns on capital greater than cost of capital for long periods of time, and available at reasonable valuations. The rules-based investment approach in MeritorQ also makes it easier to stick to our regular investment objectives, without being swayed by short term volatility and news equities, we are cautious on small and mid-caps allocation as index valuations in the space are still above historical averages, especially, after the recovery we have seen over the last one month or so. At the start of FY24, MeritorQ had significant allocation towards small and mid-caps, which worked in our favour. Over last year, however, this allocation has come down progressively. At this point in the market cycle, I think it would be prudent to be more of now, we remain fully invested in MeritorQ. Taking cash calls requires one to time the market right twice, which is difficult.I think on fundamentals alone the broader financial services sector presents attractive opportunities in insurance, wealth management etc. where we are seeing the structural trend in financialization playing out. Our investing style remains sector agnostic think so. Lets remember that both IT services and pharma are not directly affected by the first round of tariffs announced by the Trump administration till now. In IT services, fear of slowdown in discretionary client spending due to the inflationary effect of the tariffs and impact on US growth, is already priced to some extent. IT index is down in double digits this year and among the worst performers over the last 3 years. If the US does not experience a tariff induced slowdown in the latter half of the year, I think there could be a case for recovery in IT stocks. In pharma, it is difficult to see how meaningful tariffs, particularly for lower priced generics, can sustain as those will drive higher outlays for US patients and potentially drug shortages. Also, if pharma tariffs are applicable for all countries, Indian pharma companies could have an edge given their cost advantage and regulatory track record and could very well be the last ones US inflation increases due to tariffs, then treasury yields could stay elevated, potentially dragging down EM flows. Markets hate uncertainty so in case of a full blown trade war, I think India could be a potential beneficiary especially if we are able to work out a bilateral trade deal with the US ahead of other major economies.I think corporate earnings and outlook would be among the key drivers for equity markets as we enter FY26. However, investors should keep an eye on any structural trends from second and third order impact of tariffs and domestic consumption slowdown.
