Transcription
Joining us on the program is Punita Kumar Sinha ji, Founder of Pacific Paradigm Advisors, who has a deep grasp and keen eye on Indian markets and global markets. Punita ji is joining us today on the program from Boston. So, Ma'am, it would be appropriate to say good evening to you. I am sure it must be late at night there, but thank you very much for giving us your time amidst your busy schedule, and a very warm welcome to you on Business.
Tell us, because you are in America, you can understand and see things better. When is Mr. Trump going to end this war? [Laughter] Only Mr. Trump knows that. This is not an easy negotiation. Because there has been a lot of deadlock regarding the nuclear facilities in Iran. So, you are seeing volatility in oil prices as well. Sometimes they correct, sometimes they go up. Because the end of the entire war depends on what happens to oil prices, and that is significantly impacting the entire global economy. So, this war will end eventually because it is not in anyone's interest for it to prolong, but the negotiations are not at all easy, hence it is taking time.
That's true. But tell me one thing, Ma'am, what do Americans think? I mean, what do they generally think? Of course, there are different views, people from different parties. But generally, are Americans with what Trump says and does, or are they also confused, wondering what is happening in our country? We don't understand at all.
No, look, just as there are politically divided opinions here, there are divided opinions on the war as well. Those who are supporters of Israel are with Mr. Trump and President Trump. And those who are seeing the negative impact on the economy have a different view. So, there is no one clear opinion on the war. But yes, generally, the impact on the US is the least, while the impact of this war is much greater in India and other emerging markets. So, the pain is felt more there because those countries are dependent on oil, like India. So, sadly, the countries that are not involved in the war are the ones whose economies are suffering more damage. And in the US, with AI trade, semiconductor trade, even the stock markets are doing very well, and there is no such shortage of oil or LPG here. So, the economic impact here in the US is relatively less. Therefore, there is not much negative sentiment about the war, other than perhaps a slight increase in inflation. It is not impacting here as much as it is in other countries.
Yes, you said that well, because obviously, they don't have a shortage of oil and gas, and other things are not affecting them much either. So, perhaps the general public is not that unhappy. Tell us, Ma'am, why are American markets making new highs? What is happening in the American market that it is seeing such a surge? You are seeing all this related to AI and semiconductors. Even a large-cap stock like Micron went up 18% today, which is quite unprecedented for companies with a market cap of 1 trillion to go up so much in a day. And this is because the companies' results are good, and there is a lot of demand for semiconductor chips. This entire trade is happening around AI. So, if you look at the world, there is an AI trade going on, which is causing negative sentiment for software services. There is an oil trade, and a commodities trade. And along with that, power, EVs, and renewables, because companies that can generate power other than oil are also seeing benefits. So, these are the trades happening in the world. India does not have AI semiconductors, and the weightage of software services is very high. Therefore, India is negatively impacted. And of course, our economy in India is also relatively impacted, and inflation is also rising. The rupee is also weakening, and a slowdown due to oil seems to be coming in GDP, and along with that, inflation is also becoming high. So, all these factors are not very good for India. But as I said, it is not impacting the US that much.
These chip, semiconductor stocks are creating wonders all over the world, Ma'am. Ma'am, in such a situation, what about us? When will there be a rally here? Please explain. [Laughter] I think there has been some improvement in the last one month because there is so much divergence in the market that many stocks have gone up. And many stocks, like exporters who were quite hurt, like Vasan and textile companies, have seen some improvement this year because the weakening rupee has benefited them a little. And the tariffs, you know, they are behind us, consider them gone. That story is over. So, companies have grown. But yes, because our economic growth might be slightly negatively affected this year, we need to be a little careful. But market valuations have improved, and there has been a bit of a turn in the market. Domestic capital is supporting the market. So, looking at the last one month, it seems that our sentiment is turning around.
Absolutely right. There has been some improvement in sentiment in the Indian markets in the last month. You are quite right about that. What level do you think crude will settle at after the war ends, and at what level would it be good for us as a country for crude to settle? What is your opinion?
So, even if the war ends, experts think that because of the war, about 20% of the capacity has been negatively affected. So, even after the war ends, that capacity cannot resume immediately because those facilities are damaged. So, therefore, crude prices will correct on a sentiment basis, but because there will still be supply constraints even after the war ends, I think crude prices will remain somewhat elevated. This means that countries like India will feel some pain for some more time, and consumers in India will also feel some pain for a longer time. Therefore, companies that depend on consumers will face some difficulty because inflation will also be high, consumers' disposable income will be affected, and it might take some time for those companies.
That's right. One more thing that is the talk of the town here is that FIIs are continuously selling. You understand and recognize the pulse of FIIs very strongly. People are saying that taxation is a big issue, that they have some tax-related issues. We don't think that's the reason here, why do you think so? Do you think taxes need to be reduced or removed? And if so, will the selling by FIIs stop? Will new money come in?
So, first of all, many FIIs are now looking at valuations and saying that India is a buy. You know, this AI trade and these semiconductor companies' valuations have become quite high. So, a bit of caution and carefulness is being seen there. And in the underperforming sectors and markets, where perhaps there will be a positive impact from the end of the war, like in India in the long term, the valuations there have also become a bit attractive. So, many FIIs have this view that yes, we have now entered the buy territory in India. Although economic pain will continue for a few more days, and there is more negative sentiment regarding the economy, some value is being seen in the stock market. So, I think some FIIs will start investing.
This is a good thing that FIIs are finding valuations reasonable. The rupee has also weakened considerably. So, it not weakening further from here could be a good sign. Generally, what are people liking in the Indian market? Where do opportunities for investment appear?
Sir, the Indian market is quite diversified, with many sectors and companies. And as you see, there is a lot of depth in the market now. So, people will remain stock-specific. This year, you have seen that the pharma theme has done quite well. The energy sector, like power utilities, has also done well, and renewables is also a sector where emphasis is increasing. Private sector capex is also showing up in many companies, including defense sectors and other sectors like steel. So, one needs to be company-specific. There isn't one theme to focus on right now. Because the economy might slow down a bit. For example, in financials, there will be divergence because credit growth might slow down due to the reasons I mentioned. But many companies will perform well and benefit, while some will not manage as well. So, one has to remain company-specific. And if you look at it, this year, apart from pharma, power, and defense sectors, it has been company-specific elsewhere.
That's right. These few sectors are quite good. Apart from these, it would be better for you to remain company-specific. One more thing I would like your opinion on is the results season. This time, after the results, mid-cap stocks in India have seen a strong rally. What do you think? Will mid-cap stocks continue to outperform, and are there better opportunities there?
Yes, the mid-cap sector was also quite beaten down. So, valuations have improved there as well. So, as I said, the stock-specific risk-reward is now better there. So, the growth-to-valuation ratios are improving. But again, in these mid-cap and small-cap companies, in sectors like defense, power, and renewables, there are quite a few mid-cap companies, and capex is also increasing in many companies, so their earnings will have a positive impact. But yes, generally speaking, valuations have improved more in these companies because the correction was also quite severe. The decline was sharp, and now the recovery has also been fast, especially where the results have been good.
Punita ji, thank you very much. Special thanks today for taking out time from America and joining our show late at night. Thank you very much. Thank you so much. We will meet again soon.