What do you think of the reductions we are seeing today in the larger markets?
Some profit taking is normal and healthy in my opinion. Bad banking news was built in. Bank Nifty was probably the one that lagged behind the broader markets. You have to be a little careful and selective now. We have had a stellar period. Since the March lows, Indian markets are up nearly 150%. We have been very successful in relation to world markets. In fact, yesterday we crossed the market cap of $ 3.5 trillion. The UK market capitalization is around $ 3.6 trillion. A certain pause is therefore warranted and care should be taken in terms of investing new capital and seeking allocations where there is support for earnings.

There are still pockets that deserve some merit with a medium and long term vision. Our market capitalization to GDP is now well over 125%. We are 27 times the profits on a rolling basis, about 4.5 times the book value. So, on each metric, things are slightly above the long-term averages and judicious asset allocation is probably the need of the moment.

What are your main recommendations on midcaps?
APIs in the CRAM space continue to look good as here the sourcing mix and China plus one theme will take a longer period as the gestation period to get approvals is longer. We like some of the specialty chemical names where we are already seeing this import substitution happening like Deepak Nitrate etc.

Something like

is still reasonable and has actually corrected around 10%. The first quarter numbers for the finished assay and custom synthesis business were very good. The API has been cut off slightly but that’s the nature of the game. It’s a bit of a lumpy affair. They have a clear target for fiscal 23 of around $ 1 billion in revenue. They focus on this non-ARV activity. Antiretrovirals (ARVs) represent 66% of the mix. They plan to dramatically increase non-ARV activity. They have the growth levers in place for that.

We love some niche names in banking, where due to a stressful asset resolution this year, there might be an opportunity. The SBI, for example, always trades at around 1.1-1.3 book value. Restructured assets are 11.8%. The amount of new slippages is better than that of some private banking players and it is probably one of the only PSU banks to have really gained market share in both liabilities and assets. So be selective, but like I said, there are medium and long term opportunities.

The risk around banks is what we know on the asset quality front. Would you consider looking to banks that have a healthier business loan portfolio, as this is where there seems to be a lot of excitement and capital spending seems to be increasing? I’m not sure how much personal credit growth is expected to accelerate?
We would take a more holistic view. I understand your perspective on the focus on the business loan portfolio. In fact, the smarter banks like HDFC, ICICI do and I would look at how strong the asset-liability mix is. We want to see banks where cost of credit guidelines are followed and where they have a good track record in terms of credit underwriting standards. We would therefore stay with the best.

For example, ICICI Bank experienced a very quiet and granular turnaround. The retail portfolio is now already over two-thirds, still at around just under three of book value on an FY23 basis, big moves on the digital banking front. All of this focus on this RAM which is retail, MSMEs and the like is remarkable. Even HDFC Bank has been a bit downwind, with a change of custody and issues with RBI on the card front affecting fee income. It is still a very solid franchise with a record of Rs 17 lakh crore. He did not do as well as the other constituents of Bank Nifty.

So we would stay with the best and there are better opportunities in niche financial names, asset management companies, custody companies as we move forward.