I recall when we were speaking in June, you had mentioned that there’s no concern in the market from a long-term perspective, but in the short term, we have Trump to deal with — and nowadays, it’s almost on a daily basis. So, what should Indian investors be picking up from all this news flow right now?
Ashwini Agarwal: As your previous guest was saying, the right thing to do at this point is to take a longer-term view and ignore the short-term noise. You mentioned pharmaceutical exports earlier — President Trump has said he would impose very high tariffs on pharma products because he wants pharmaceutical companies to invest and manufacture in the United States. But one has to remember that even if companies started investing today, it would take at least three to four years before any production could begin — and by then, the current president’s term would be over.
So, while tariffs are one thing, the economic decisions companies make are long-term in nature. Companies will have to think ahead and ask themselves the tough question — does it make sense to manufacture low-cost generics in the U.S. given the cost structure there? To me, the answer is quite clear: you have to muddle through this market. You have to take some pain in the short term and hope that things will become more rational in the long run. That’s the only viable path.
In the short term, we’re also facing challenges because the earnings season has been quite weak, and there’s a massive supply of paper coming through the IPO market. So we’re looking at multiple headwinds affecting the market right now.
But what does that mean for investors? Are we staring at more difficult days ahead? July has already seen a bit of a rough patch, FIIs have been on a selling spree. Could it get worse before it gets better, or do you think we’ll remain range-bound now, especially given the intensity of short positions — it seems pretty acute and perhaps near a bottom?
Ashwini Agarwal: In the short run, I believe the downside is somewhat limited — maybe 2–3%, 4% from here — that’s my personal opinion. Of course, I could be completely wrong because the short term is honestly impossible to predict with any real accuracy.In the medium term, however, I’m hopeful that the lower interest rates and easier liquidity policies pursued by the RBI over the past three to six months will begin to support domestic demand. Of course, there will be some trade-offs — if the proposed tariffs on exports to the U.S. remain high, there could be headwinds from that front.Overall though, I’m hoping for stronger domestic demand during the festival season, and that could support the market. But if, for any reason, domestic demand continues to stay subdued — despite all the liquidity in the system and all the push from the government through capex and PSU investments — then all bets are off. We could see the market test lower levels on a broader basis.
That said, my advice to investors would be:
A) Take a long-term view. The downside from here seems fairly limited, assuming liquidity and interest rates do their job in supporting demand.
B) Look for bottom-up opportunities. There are many stocks that are down 40–50% from their September 2024 peaks, and valuations in these cases are no longer challenging.
If one can look out two to three years, several of these stocks present very interesting investment opportunities. So that’s one area stock investors should consider. Otherwise, I’d say — just stay invested and ride it out. There’s nothing much to be done right now.
That’s quite interesting. Could you be more specific — which sectors or pockets do you see these bottom-up opportunities in?
Ashwini Agarwal: One clear area is non-banking financial services, especially MFIs. If you look at the commentary from many MFIs, they’re all indicating that incremental NPAs are largely under control or not increasing. What we’re seeing wash through the system now are the NPAs that have already been identified — and those are being provided for. Maybe there’s another quarter of pain left.
Several of these companies have been recapitalized, and many continue to trade at or below book value. At their peak, some of them were trading at 3–4 times price-to-book. Now, I wouldn’t say that 3–4x was rational, but 1.5x — or even 1.2x in some situations — isn’t unreasonable.
If you can buy these stocks below book value and hold them over a year and a half, you could make returns of 30–40%, which is quite attractive. That’s just one example. There are similar opportunities in domestic consumer plays, in financial services, and across different industries.
Of course, there’s some risk involved, and you have to think medium term, but there are definitely opportunities out there.
