Valuations Need To Broaden To Attract More Foreign Flows, Says Nepean Capital's Gautam Trivedi

While rate hikes may continue, demand hasn't slowed down despite the tightening spearheaded by the U.S. Federal Reserve, according to Gautam Trivedi, co-founder and managing director at Nepean Capital Pvt.

India is one market that asset allocators are counting on, he told BQ Prime during an interview. While the country ranks fourth by cash inflows from global investors, to attract more investment “valuations will have to broaden”, he said, implying that they are currently expensive. A slight pullback in valuations, he said, could be healthy for the market.

Amid opportunistic buying in small and mid-cap stocks he said this basket has traditionally traded at a premium due to India’s reputation as “one of the best long-holding markets in the world”.

The transition of small caps to mid caps, and mid caps to large caps is unique to India and a primary factor for foreign investment interest, he said.

Additionally, Prime Minister Narendra Modi's visit to the United States and the consequent collaborations between the two countries will only magnetize more fund flow, Trivedi said.

Trivedi sees strength in banks, cement, and infrastructure, particularly due to government spending. He also said investors should focus on companies with a business-to-government orientation amid the upward trajectory of the capital expenditure cycle.

The FMCG sector, he said, is experiencing a slowdown because of weak rural demand. This also applies to other beneficiaries of rural income such as two-wheelers, agriculture and remote financials.

Trivedi is cautious on pharma and information technology, saying that they would be the first to be impacted if the U.S. enters a recession.

The beverage sector, having benefited from improved electricity penetration and easier storage options, is a new pocket for consideration, he said.