Selling by foreign portfolio investors should not concern the Indian markets too much as it has been matched by buying by domestic funds, while the underlying business fundamentals in the economy should sustain its long-term performance, said Manish Bhandari, Founder, CEO, and Portfolio Manager of Vallum Capital Advisors.
“The market’s reduced dependence on FPI investments is evident through strong domestic flows, particularly through SIPs,” Bhandari told businessline in an interview.
Considering the current economic uncertainties and evolving market dynamics, which sectors in India do you believe hold the strongest potential for long-term growth, and what factors underpin this outlook?
Electronic manufacturing shows particular promise, especially with government emphasis on sectors like drone manufacturing and MRO activities in aerospace. Small engineering niche segments are also poised for growth.
The manufacturing internalization push by the government will benefit related sectors. However, India’s story remains a mix of top-down sectors and bottom-up companies. For instance, within banking, while some private sector banks like HDFC and Kotak haven’t performed well from a stock market perspective, others like ICICI have thrived. Similarly, old-generation private sector banks like Karnataka Bank and Karur Vysya Bank are seeing revival. The diagnostic segment within healthcare also shows strong potential for growth.
SEBI’s new ODI regulations aim to enhance transparency but may also alter the investment landscape. How do you foresee these changes affecting FPI flows and their preferences for Indian equities in 2025, particularly in mid and small-cap segments?
Currently, FPI holdings amount to approximately ₹70-71 lakh crores out of India’s total market capitalization of ₹444 lakh crores.
While FPI holdings have decreased to a decadal low of 15-16 per cent in recent months, this decline cannot be specifically attributed to SEBI’s circulars. Enhanced surveillance shouldn’t concern FPIs about disclosing end beneficiaries.
The market’s reduced dependence on FPI investments is evident through strong domestic flows, particularly through SIPs. The ease of investing in Indian markets has significantly improved, making the market less reliant on FPI flows for institutional investors.
With volatility and global macroeconomic pressures shaping market trends, what strategies would you recommend for Indian investors to manage risks while capitalizing on potential opportunities in the coming year?
Investment strategies should be tailored to individual styles, whether they’re day traders or long-term investors, each with their unique risk tolerances. Indian markets present interesting opportunities for decade-long investment horizons, supported by strong foundational pillars.
Market rotations occur across various sectors, from hotels to discretionary consumption to rural consumption. Investors should either develop skills to navigate these market rotations across sectors, countries, economies, and business microstructures, or consider delegating their capital to professional money managers who can execute these strategies effectively.
Over the last few years, what kind of returns has your portfolio generated, and what strategies do you plan to implement to sustain or exceed these returns in the current market environment?
Vallum Capital has achieved a remarkable 29 per cent compounding rate, consistently outperforming reference indices since inception. The firm employs a growth-at-reasonable-price investment strategy, avoiding momentum plays and deep cyclicals or value investments.
Their approach combines top-down and bottom-up analysis, which has proven successful in navigating both challenging and favorable market conditions. For instance, they invested in Colgate despite the overall FMCG sector’s underperformance, recognizing micro-changes within the company that led to strong performance.
If FPIs were to reduce their allocation to Indian equities, how do you anticipate this would influence market valuations and the overall performance of portfolios like yours?
Any selling by FPIs has been effectively absorbed by domestic institutional investors, including mutual funds, pension funds, and EPFO. The market’s response to FPI flows depends primarily on economic fundamentals rather than short-term capital movements.
This was evident in recent months where significant FPI outflows were matched by domestic buying. The market has demonstrated resilience through various cycles of FPI inflows and outflows, particularly in October-November when substantial FPI capital returned. Ultimately, it’s the underlying business fundamentals and valuations that determine long-term performance, not shareholder composition.
As we step into a new year, what key investment trends or macroeconomic factors do you believe will shape the Indian equity markets in the near future, and how are you positioning your portfolio to align with these trends?
The first quarter of 2025 will be crucial as Trump’s trade policies will significantly influence global business realignment, affecting taxation and manufacturing in the US.
India appears relatively insulated from potential negative impacts, with numerous Indians and Indian-Americans in Trump’s advisory council. Key emerging themes include domestic healthcare, CDMO opportunities in agrochemicals, and PLI-based manufacturing reaching maturity. A potentially significant development for 2025-26 could be enhanced India-China manufacturing partnerships, despite recent border issues.
While overall market returns might not match recent years’ performance, specific market microstructures are expected to generate significant returns. Vallum remains positioned to capture these opportunities within market microstructures.
Is there anything you’d like to add or emphasize, especially regarding the evolving investment landscape or opportunities that investors should watch out for?
Post-state elections, the government has indicated plans to boost public sector CapEx by approximately ₹1 lakh crores, with partial implementation already underway. The upcoming Budget 2025 is expected to introduce positive policy changes.
There’s anticipation for new incentives focusing on job creation and public infrastructure spending. A key recommendation is government support for the auto sector through subventions for old vehicle phasing out, which could stimulate the auto cycle, recycling industry, and address trade deficit issues while creating light engineering jobs.
Published on December 24, 2024
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