India's nominal rate of return may be capped at around 13-15% in the next fiscal due to high inflation, according to Ayaz Motiwala.
The year 2023 could be a year of consolidation, with a preferred focus on the preservation of wealth than on expectations of high returns, the senior fund manager at Nivalis Partners told BQ Prime's Niraj Shah. In the medium-to-long term, the returns will be strong, but there are chances of a brief pause in the near term, he said.
Rural Recovery
Large fast-moving consumer good companies are finding it difficult to get new customers including e-penetration into certain categories such as soaps, detergents, and entry-level shampoos, according to Motiwala.
The reasons are diverse and many, starting with the effect of demonetisation on finance and wholesale pricing coupled with the impact of irregular monsoons on agricultural growth in certain farm-dependent regions of India, he said.
The growth of most FMCG stocks some 10 to 15 years ago was dependent on acquiring new customers, which contributed to a third to half of the incremental growth, Motiwala said. However, this is not the case anymore, he said.
The base case, now, is more about predicting bottoming out and finding the improvement in outlook on crop pricing as consumers have "shifted focus on the very basics on account of these challenges", he said.
As such, Motiwala does not preempt a strong recovery in the near future.
Urban Discretionary Spend
Although growth in travel and automobiles has been conspicuous alongside capacity utilisation and fresh investments, FMCG in certain branches, such as "apparel stocks", has gone for a toss in the past six months, Motiwala said.
Therefore, this space will see rough weather over the next six months, he said.
The best is to search out for specific companies in different pockets of the FMCG space that would benefit from the current market scenario instead of focusing on the sector as a whole, Motiwala said.
Hospitality Sector
There is a structural growth in the hospitality space after recovery from the Covid and benefiting from extended travel and wedding spree, Motiwala said. The business model at present is similar to those in the U.S. where asset running and asset owning companies are different, he said.
The Tata group may take the lead on these lines by taking the capex heavy side of the business into a different structure over time, he said.
Therefore, if the utilisation hits a certain threshold, the pricing might rise, Motiwala said. But from a long term investment perspective, the space is not yet exciting at this juncture, he said.
Watch the full interview here:
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