Talking about promoters diluting stakes at a high valuation, Bhowar said that in itself is not a problem as they should be rewarded for their hardships. It becomes a problem only when the promoter is moving out of the company and not having a control in the company after dilution, he said.
Edited excerpts from an interview:
Markets hit an all time high after 13 months but is this level sustainable?
The market will trend higher from here on. From March onwards, the government has done things to improve consumption, starting with income tax cut, RBI rate cut, GST cut, and we might also see the Eighth Pay Commission (revisions) from January onwards. Smartly, the government has lowered speculation in derivatives and also banned real money games. So, now whatever capex was done for the last few years should end up getting consumed. Hence, markets will do well from here on.
“The next leg of growth will come from FMCG, consumer discretionary, building material companies, and others. There is a case for returns higher than 12% but it depends on (how) the global economy pans out.”
We expect a 10-12% return in Nifty 50 in the next one year, not as high as the last few years. Just that companies and sectors which did well in the capex run over the last few years might not do well. The next leg of growth will come from FMCG, consumer discretionary, building material companies, and others. There is a case for returns higher than 12% but it depends on (how) the global economy pans out. I have a contra view that the AI (artificial intelligence) fallout might be positive for India.
Why do you say that?
IT services companies are not hiring. There is a demand for IT services but they are not hiring because they’re using AI. The same activity done by 10 people earlier, can now be done by five. So at the end of the day, it is going to take jobs.
FIIs have been pulling out and pouring some money sporadically? Why?
FIIs are mostly rebalancing. India’s market valuations were at a 100% premium to emerging markets in September last year, when they have historically been around 60%. Moreover, markets have gone up substantially since 2020, so it is obvious for them to book some profits. Now, that we have reverted to a 60% premium, FIIs are coming back in some way. A cut in interest rates would be a trigger for FIIs to come back?
“FIIs have been positive in IPOs. They’re selling the old economy and buying the new economy. I would have been worried if they were selling in primary markets, too.”
But, FIIs have been positive in IPOs. They’re selling the old economy and buying the new economy. I would have been worried if they were selling in primary markets ,too.
Will FIIs not go to emerging markets with cheaper valuations instead where growth is visible?
Growth for India looks higher and now with a valuation comfort, they will come. Indian markets did not perform because growth was there but valuations were discomforting.
From 2005-15, IPOs had an offer for sale component of 23%. In 2015-2025, the OFS component in total money raised via IPOs increased to 29%. Is it concerning to see the share of OFS increasing while the share of money raised to deploy back in company operations is being reduced? Also, most of the IPOs are priced to perfection or even over-valued.
IPOs should be priced to perfection. By giving a listing pop to investors, it becomes unfair for the promoters. I believe anyone investing in IPOs for a listing pop should honestly lose money because buying into IPOs should be a long-term view.
I am positive when the promoter is diluting his stake in IPOs . The hardships the promoters have gone through from 2020 is immense, where many promoters have shut shop also. These are the promoters who stood back and managed their business, managed their employees, and now if they want to dilute their equity, they should be rewarded. The new generation of entrepreneurs do not want maximum control over the company, they do not want to take debt to capex. They’re rather diluting stake and using that to further invest in their companies. It becomes a problem when the promoter is diluting, moving out, and not then not having control in the company.
Do you have a contra view on any sector?
We’ve taken a contra view on QSRs (quick service restaurant chains). There are two consensus on the street. One that everyone will just order a pizza or burger on Swiggy. And other that no one is really looking at the sector—maybe because of the whole “junk food isn’t healthy” narrative.
“Now inflation is at its lowest… When milk and vegetable prices rise, it hits (QSR chains) and they can’t pass on costs quickly. Now the reverse is happening… they’ll ensure that the margins come back.”
But if you look at the menus of the QSRs today, they’ve started adding protein-focused items. Plus what really didn’t work for them earlier was the high-inflation environment. Now inflation is at its lowest, which should actually benefit them because their key commodities are milk and cheese. When milk and vegetable prices rise, it hits them and they can’t pass on costs quickly. Now the reverse is happening. Now they’ll ensure that the margins come back and then the profitability.
On top of that, the sector went through huge capex — everyone doubled their stores.
Any other asset classes you are suggesting to your clients?
REITS, Invits, and commodities like gold and silver. Most large families are saying they are not happy with the lower yield in fixed income assets post tax, so REITs and Invits become a better choice. Plus dividend income from REITs is not taxed.
What do HNIs want now?
Earlier, everything they invested in, sat in the market pool: fully liquid, easily sold within a week. But now around 5-15% of a large family’s assets go into a growth pool, which assumes a 10-year lock-in and includes unlisted equity, private equity funds, infrastructure and real estate. Many of these families are entrepreneurs and get their own deal flow. So they come asking, I have to invest in a friend’s business, can you evaluate and tell me how much to invest?
