30-05-2025
NBFCs may outperform banks as rate cut fears weigh on NIMs: Rajeev Agrawal
"If we look at some of the recent metrics that have come out in terms of the PMI and all that, they are looking pretty strong, interest rates are coming down. So, in general, the sense on India's macro looks pretty good and that is one of the reasons that the markets are going up but clearly, it is not a cheap market as you were saying earlier in the show," says Rajeev Agrawal, DoorDarshi India Fund.
ADVERTISEMENT What is the headline we should focus on? Yesterday, it was the ruling from a US Appeal Federal Court that tariff will not be implemented. Today, the headline is tariff will be implemented. Can we decide what we should focus on, 24 hours and world changes?
Rajeev Agrawal: That is the fun of today's times that things are changing so rapidly that you have to either focus on them or ignore them completely. One possibility is do not even worry about all these things and focus on the fundamentals.
Indian markets are going up. Is it largely because of flows? Is it largely because of monsoon? Because between April and May, the sentiment has changed, prices have changed, outlook has changed, and flows have changed. What is driving Indian markets higher?
Rajeev Agrawal: So, one is definitely the flows. We have seen FPIs come back into the market quite strongly, Indian markets. I think, also as financial year 25 has ended and that was a single-digit earnings growth, there is expectation that given that the lower base the earnings going into next year will be strong. If we look at some of the recent metrics that have come out in terms of the PMI and all that, they are looking pretty strong, interest rates are coming down. So, in general, the sense on India's macro looks pretty good and that is one of the reasons that the markets are going up but clearly, it is not a cheap market as you were saying earlier in the show.
ADVERTISEMENT So, what has been your portfolio strategy, recommending to buy anything, book out of anything? What is looking like, it is already frothy and what is looking like there is value on the table now that earnings also are behind us?
Rajeev Agrawal: So, in terms of what we are buying, actually we are rotating a little bit. So, what we are doing is selling some of the more expensive names and then utilising the cash available to get into some of the more compelling opportunities in this market. Areas where we are finding good opportunities continues to be financials where we think still there is this concern that interest rates are coming down which will have pressure on the NIMs especially for banks, but that may not be the case for the NBFC, so that could be one area that one could look at.
ADVERTISEMENT Capital markets, again as the markets are coming back, some of the capital market players were hit quite hard when the correction came, so some of the markets either on the wealth side, asset management side, and as well as the capital markets, they continue to look quite interesting even at this point.
ADVERTISEMENT Just tell our viewers about your top India holdings, where have you been investing, where were you invested, where you plan to remain invested, and where were you invested and now you are selling it.
Rajeev Agrawal: So, in terms of financials, I am happy to give you some names, I know there are a lot of regulations around it, so I will just give the caveat that obviously this is not recommendation. But I think some of the power finance companies look pretty interesting to us. The power is going to be an area where there will be a lot of development in India given the power need and if we look at both PFC and REC, those companies should continue to grow their book.
They are not necessarily that expensive even in this market and the asset quality is improving, so that is one area that we basically remain bullish about. In terms of where we are, if we are selling some, I think some of the renewable energy areas are where there is enough value possibly or enough price now that one could look at starting to get out, I mean some of the solar names you can see that they have gone up quite a bit as the business has improved, but frankly running a bit ahead and then another one is the defence area where clearly the names have run up very quickly and there might be an opportunity for people to take some money off.
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