ETMarkets Smart Talk- Consumption in India is expected to be a multiyear theme: Dikshit Mittal

In an interview with ETMarkets, Mittal said: “The leading companies in discretionary space like QSR, consumer durables, retail etc. may do well going forward” Edited excerpts:

Market seems to be consolidating after hitting record highs. What is your take on the market?

After hitting record highs in October 2021, markets have consolidated and delivered a flattish return over the last 20 months.

During this period the performance of the equity market was dragged by global inflation and a sharp rise in interest rates.

The rise in the cost of capital acts as a drag on equity valuations. However, double-digit earnings growth of corporates in the listed space recouped the drag on valuations due to higher interest rates delivering overall flattish returns.

I believe the bulk of the drag on the markets is due to high inflation and high-interest rates, which are now behind us.

However, consumers are still reeling under the impact of inflation and high-interest rates, which has reduced discretionary spending power, resulting in a demand slowdown.

I believe over the next 2 quarters as the festive season kicks in some part of the demand may come back. Additionally, as commodity prices have cooled down, corporates have much better control over margins.

So overall, corporate earnings can still post decent growth, which should support the market.

However, one needs to be watchful of global developments as all major economies seem to be struggling, and any major negative global development can lead to an earnings downgrade cycle which will determine the direction of the stock market.

What is your take on RBI rate action?
RBI has kept the repo rate unchanged at 6.5% for the third consecutive meeting, citing the fact that CPI inflation remained inside its 2-6% targeted range, which seems a fair outcome.

However, led by food, CPI inflation seems to be rearing its head again, which will keep RBI in watchful mode.

Future rate actions will depend on the impact of 250 bps rate hikes already done till now, evolving El Nino conditions, and the trajectory of oil prices.

Any new age companies which you think could turn out to be the growth engines of the future?
Investing in new-age companies is meant for high-risk takers, as business models are still evolving. In addition, there is a high risk of disruption and irrational competition, which can lead to a prolonged period of losses.

Some of the companies with differentiated business models in the food tech industry as well as fintech space can be the growth engines of the future. One cannot ignore the space completely.

I am watching the space keenly for any signs of sustainable profitability.

SIP contributions surpassed Rs 15000 cr and new SIPs are getting registered every month. This gives D-Street enough ammunition at times when FIIs are selling. Do you think it showcases retail investors are here for the long haul?
Record high SIP flows have no doubt made the domestic market resilient, and the market is no longer dependent only on FIIs. Rising SIP levels also indicate the growing maturity and financial education of investors.

In addition, the recent good performance of equity markets has also increased faith in equity as an asset class, which bodes well for the future.

What would you advise to investors who are waiting on the sidelines to put in fresh money?
Unless one is making a large lump sum investment, it is futile to time the markets. Once any investor has decided on asset allocation, for the equity part, one should keep regularly investing in the market with minimum 3-5 years view.

Over longer time frames, equity markets may give returns in line with nominal GDP growth.

A Motilal Oswal survey highlighted the growing attraction of Index Funds or ETFs. Why is retail money flowing into these funds – is it simplicity or they are being promoted like that?
There are various pros and cons of investing in index funds. A lower expense ratio, simplicity, and lack of active fund manager bias are some of the pros which are leading to growing popularity.

Also, the sheer variety of index funds on offer like domestic, sector-specific, and international funds, etc. provide diversification options to investors.

Most global organization have suggested that India will double its GDP probably by the close of 2030. Do you think consumption will be a big theme that could produce multibaggers along with infra?
Consumption in India is expected to be a multiyear theme. A large part of incremental GDP growth is expected to come from consumption, and within the consumption basket, discretionary consumption is expected to grow at a faster rate than the nominal GDP growth rate.

We have already crossed USD2000 per capita GDP, and incremental gains on GDP from here will lead to disproportionate growth in spending on discretionary consumption.

The leading companies in discretionary space like QSR, consumer durables, retail, etc. may do well going forward.

What is your take on the recent IPOs which hit D-St? There is a frenzy, but it is not the same as we saw last year or the year before. What are your views and any company you are looking forward to?
Many of recent IPOs are from niche sectors and are unique businesses and have a large addressable market. Considering the current economic trajectory wherein our GDP is expected to cross $5trn, there is significant headroom for the expansion of public markets.

In a growing economy, newer segments and sectors will keep on opening up, and companies with good management and good execution track records will find takers, and there is no dearth of growth capital for scalable and sustainable business models.

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