Banking sector should be the next big mover going ahead: Ashwini Agarwal

"It is very difficult to predict FII flows because they are driven by a whole host of factors including inflows into ETFs which is not a conscious decision on part of the ETF manager. I mean, if the ETF flow receives money they will invest," says Ashwini Agarwal, Founder, Demeter Advisors.

We finally scaled it to that all-time high. This time around the participation is really coming from the DIIs. Who is feeling the FOMO that is the FII fraternity because they did not participate as much in this last lap of the rally from December 1, 2022, when we last scaled that all-time high up until today? Wanted to understand, do you think they are going to only play catch up and we will have a consecutive buy now from the FIIs?
It is very difficult to predict FII flows because they are driven by a whole host of factors including inflows into ETFs which is not a conscious decision on part of the ETF manager. I mean, if the ETF flow receives money they will invest.
So I cannot predict foreign flows. But what I will say is that India is right now the centre of attention of the world. I mean, Prime Minister Modi was in the United States last week. You have the Goldman Sachs board visiting India this week. Now you had all the right noises coming out of Prime Minister Modi's visit to the US last week including new manufacturing commitments from various global leaders. And prior to that in early April, we had Tim Cook visiting India and similar sort of frenzy or I would say attention was created.

So the point that I am making is that India is certainly an attention of the world and there are multiple drivers to that. One is that we are growing quite well and do not have any macroeconomic imbalances unlike several other markets in the world.

Number two is that it is getting to be a bipolar or a multipolar world. And in a multipolar world India seems to find itself positioned quite well from a geopolitical perspective which also makes it easier for firms to making investment decisions as to where they need to go next or where they want to go next.

And last but not the least, you have this huge domestic population which is going to be a source of consumption for the next 30, 40, 50 years. So if global companies are coming to India, they are not only coming to India because it can be a good global sourcing point for them but also because it is a very large domestic market already and in the making of a very large market.

So for all the right reasons, we are receiving a lot of attention. So what that does to the FII flows, I have no idea. But yes, it is nice to be where we are.

But you think that at least the texture and the nature of the rally will broaden a little bit? Because what we have seen is from the last time peak up until now, it has been a very narrow market. Very few hands have actually done the heavy lifting. Whereas your traditional heavyweights the likes of HDFC Bank, Reliance, TCS Infosys etc. have been very much on the side lines.
You are right, absolutely. My sense is that the banking sector should be the next big mover from here. Simple reason is that the operating environment for them is about as good as it gets. Credit growth is picking up, spreads are stable. The fear about tightness and liquidity is probably behind us. And the credit cycle continues to be extremely benign and valuations are nowhere close to all time peaks.

The only question that investors have in their minds is that what is the disruption that fintech can cause to the traditional banks etc.

And here at least for the private sector banks, most of them have brought in fintech into their own operations in a big way.

So hopefully the disruption is going to be fairly limited. So my point is that I think banks look very good. On IT that you spoke about, my sense is that the fears around the June quarter is probably well priced.

And once the June quarter results are delivered, then you probably see things coming back to normal and these stocks participating. Simple argument here is that the US economy seems to be doing a lot better than what most of us were thinking.

Rates being as high as they are in the US, there seems to be no slowdown. And I think the IT spending, which is kind of bit on the, a little on the slower side has got reasonably priced into stocks at this point especially for the larger cap names.

So let us see what the June quarter results deliver I could be wrong but my sense is that a lot of the bad news is already priced in so that gives us room for upside there as well from a medium term perspective.