ET Now: At these levels purely based on valuations, are Indian markets attractive or are they still overpriced?
Nikhil Vora: Yeah, it is very funny. Right now you are looking at all the variables, which are clearly against India, be it interest rates, inflows, inflation or even international news. Having said that, we played the negative call on the market fairly well. Incrementally from hereon, I see a lot of positive takeaways from these events, which are happening globally right now. My sense is that if you look at crude firstly, crude is right now at two-year high and I feel is that when international economy starts to recover, it is dangerous for those economies more than India to see crude at levels of 125-130 plus. Also, the events that one is looking at right now are exogenous and not really something which is demand lead. If it is speculative in nature, over a period speculative elements do tend to wear off and thereby normative pricing cycle will tend to come back. So I am more positive and sanguine on the prospects of crude really coming back possibly by around 15-20% from the current levels over the next 6-8 months. So crude could be actually a positive as we move forward.
One is willing to live with aberrations, which may happen in the near term. On interest rates and inflation, my sense is that food-related inflation has broadly peaked out. You have looked at the last couple of years of extremely strong food-driven inflation. My sense is that has broadly peaked out, at least in the near term and if any, you may see flattening inflation rate as we move forward or at least it has peaked out from hereon. So incremental growth is going to be fairly limited. On inflows, an interesting thing that one is looking at is that never ever has in the last at least 12-13 years, the Indian markets underperformed global markets by any material margin. Just twice Indian markets have been lower than global markets and that too by a very small margin and that only happened during an international crisis. So India has never really gone down on its own and today there are no real reasons for us to disbelieve that theory. So my sense is that the markets have underperformed by close to around 15-16% global markets and incrementally from here to the next six months to a 12-month period, the underperformance that one has seen will possibly come back and you will see the markets coming back to a more normative return from hereon.
So we have always been stronger in our bottoms up approach and bottoms up strategy on the market rather than top down. Our call is that macroeconomic variables while they remain variable and extremely tough to predict, our sense is that trickle down impact on corporates and corporate earnings is not as extreme as is being made out and thereby there should be a bounce back in the market. So our call is that in the next 12 to 15-month period, you would look at a 15-18% return on the index from hereon.
ET Now: What about the FMCG space ?? The latest news in Henkel India acquisition, what happens to the balance 51%, which is up for grabs? Which player according to you will finally clinch the deal because there are a whole lot of names doing the rounds, including Emami?
Nikhil Vora: Very frankly, I do not think the first tranche of buyout, which you have seen by Jyothy and Henkel will in any mode really impact the Henkel stake sale. In all fairness, Henkel and the Muthiahs were anyway at loggerheads during their joint venture earlier. So I do not think there will be too much of merit for the same transition to happen towards Jyothy as we move forward. Having said that, obviously Jyothy does have a better chance if any and they would be in a better position to possibly pay a fair price for Henkel stake. My sense is there are fair bit of Indian players who will be interested in the brand that Henkel has, the distribution that they have and possibly also use Henkel's vehicle for incremental distribution, which they can get in different geographies in India, which possibly the current core product line does not have. So players like may be Emami, Godrej and Jyothy for sure will be interested in this buyout.
Souece : ET