Navigating tough times + Black Friday offer
Before we begin, a quick update on our Black Friday offer!
Black Friday Offer: We are offering a free onboarding call from the 2nd to the 6th of December for folks looking to understand our research process and performance better. You can schedule a call here: https://calendly.com/gsninvest/gsnonboarding
[Our research offering is priced at Rs.50,000/yr and is ideal for folks with 25L+ in equities]
As Q2 results come to a wrap, the Indian economy is showing early signs of stress. Indian consumer businesses are showing signs of a slowdown, with urban demand seeing pressure, and microfinance and unsecured lenders are showing increasing slippages. GDP growth for Q2 slowed to a seven quarter low of 5.4%. A high inflation number at 6.2%, with urban food inflation at 11%+ has limited the options available with the central bank. The markets have also seen consistent FII selling since September, which has added downward derating pressure on the markets.
This fatal concoction of weaker growth, higher inflation, and higher outflows, have had an impact on the markets as well.
Which poses two question -
1. How do you reduce downside risk in this environment
In the NBFC space, we are restricting exposure to secured lenders - ideally backed by collateral that has both enduring economic and emotional value (gold and primary residence.) Gold backed lenders, affordable housing finance players and loan against primary residency are our top preferences in this cycle.
In non finance, we have purposefully been strongly underweight direct Indian consumer for more than a year now. The combination of high starting valuations and slow and decelerating growth is fatal for stock prices. We get exposure to the space via global consumer proxies, cash management plays that continue to do well with continued cash persistence in Tier2+ India, and efficient distribution plays that continue to do well even in the current environment.
And finally, it is critical to maintain valuation discipline - both in terms of buying new businesses at a good starting valuations, and exiting businesses that have seen a strong upward rerating over the previous cycle.
2. Where do you look for opportunities to benefit
We are looking for incremental opportunities in primarily two sectors.
Safe havens: As the domestic environment weakens and the currency likely follows, the relatively stable demand picture that export focussed pharma and IT offer will drive increasing interest. ER&D players that benefit from a faster growth trajectory driven by compressed innovation cycles can also be on our radar.
Fallen Heroes: While we will continue to stay away from consumer staples, many consumer discretionary players that offer strong through cycle growth are now beginning to appear at attractive valuations, and could fall further as the cycle worsens. We will look for opportunities to add to these with a longer term view.
We end with a beautiful couplet on resilience in these times - ???? ??? ??? ?? ????, ?? ?? ??? ?? ????