“The confidence is coming back,” Saldanha said, adding that investors are viewing India as a little more safe, a little more defensive amid global uncertainty.
He expects industrial exporters, power equipment companies and data center-linked businesses to benefit from continued investment, while noting that artificial intelligence (AI)-related demand remains intact even if some deployments are delayed by a few quarters.
On portfolio positioning, Saldanha said Neuberger Berman remains focused on earnings-driven opportunities rather than short-term market moves. He highlighted ICICI Bank, Persistent Systems, Bharti Airtel, Netweb Technologies and GMR Airports among preferred names, while continuing to favour midcaps for their stronger earnings growth despite higher valuations.
“Go with the earnings, instead of trying to chase a bounce,” he said, adding that India is kicking in with rising data center investment and capital expenditure.
This is an edited transcript of the interview.
Q: I remember our last conversation where you said that India looks attractive, but you couldn’t pinpoint a clear catalyst for flows to come back to the Indian market. Well, at least in the month of July, we did see FPIs nibble back into the Indian market. Sitting outside India, what’s the view now?
A: It’s definitely the theory of relativity. Given the volatility we’ve seen in North Asia, you have seen some of the money come back, and also you see both earnings starting to base out, as well as the FX market, with the rupee starting to base out with some of the moves by the Reserve Bank of India (RBI), albeit subtle.
So, I do think that confidence is coming back, even though the market hasn’t done anything. You’ve had a time correction and an absolute correction, along with lower volatility in the market. I think that’s what you’re starting to see. People look back at India as being a little safer, a little more defensive, and away from all the noise globally.
Q: But you don’t shy away from telling us what you’ve bought of late. You know, in the couple-of-billion-dollar portfolio in India that you manage, what’s new, or where have you increased your weight?
A: I think we’ve been consistent, but also boring. In terms of financials, Shriram Transport was the name a few months back. But I would say if you look at ICICI Bank’s numbers, we’ve owned the stock for a while. Those look pretty solid. So, I would say, just go with earnings, right, instead of trying to chase a bounce.
IT services had a good bounce, but within that, I would say, again, the earnings coming out of the likes of Persistent Systems have been strong. It’s a name we added too and really like over the long term. So those are a few spots I would say.
Telecom earnings still look good, even though stocks may not be performing as well. Someone like Bharti Airtel still looks good to us. Broadly, financials are seeing good earnings coming through, barring a couple of net interest margin (NIM) pressures you’re seeing. Overall, they look pretty good. Telecoms look good.
Metals and mining earnings have bottomed out, but again, it’s cyclical, right? So, it’s rather difficult to predict. And honestly, I prefer a lot of names globally that I could own versus owning something in India in that respect.
Q: In the smallcap and midcap space, largecap indices are still flat. So, is there a bit of a call here to lean more on largecaps? Because that’s what many investors have been doing for a while. Midcap and smallcap indices are at all-time highs. They’ve had a fantastic run. So maybe large caps are where the next rotation is going to come from. I’m not sure that’ll happen, but how are you positioned?
A: We have favoured the midcap space for a while, partly because of growth coming through from a lot of differentiated businesses. If you look at the rupee weakening globally over a 12-month horizon, or even over a few years, I do think a lot of the industrial export sectors such as machinery and equipment will stand to benefit. There is better growth.
So, if you look at that smallcap and midcap segment, on average, you’re getting about 10 percentage points of extra earnings growth versus the larger caps. Now, albeit to a point, it’s done well, so you are paying a premium. On a multiple basis, you’re also paying for that seven to 10% growth. But I think most folks would justify it and say, listen, on a price-earnings-growth (PEG) ratio, they kind of make sense.
But obviously, in a market that’s pretty flat, people are looking for stock picks, and when you get higher growth, people are willing to pay up for it.
Q: Any other mid-caps or small caps? I remember last time you were also talking about GMR Airports. The travel and tourism space looked attractive to you. Any such themes?
A: I think it still is attractive, given that those stocks haven’t performed well, but there’s some good moats, especially with an asset like GMR.
I’ve mentioned this historically too, and I’m sticking with the same names. I think Netweb Technologies. When we speak to a lot of the players on the component and equipment side working on data centers, India has been coming up over the last quarter or two for more capex, more demand, and more orders coming through. So, I think that’s happening.
We’ve historically owned a name like Netweb Technologies for a while. I think the power equipment side will still look pretty good. And as much as I think we get obsessed about AI, demand is vastly outstripping supply. I can tell you that in the US, because of the bottlenecks, a lot of these deployments are going to get pushed out by at least a couple of quarters.
So, I do think that demand profile is there. It’s probably getting pushed out. So, from a revenue standpoint, you’ve got to watch out. But India is kicking in. I think Asia is continuing to execute, and so I would highlight a name like Netweb or the energy sector, which is another player benefiting from that growth that’s going to be structural.
Q: A quick word on SpaceX. It went to space, but it’s come back down. I think the last time we chatted, you were talking about it. Interesting prospect, the Street is looking way ahead. The stock is down by half from the top. Any comment on that?
A: I think the last time we spoke, it might have been a day or a couple of days after the IPO. And, at around $200, I don’t know how to value it because, to me, Starlink is making money from the communication side, but the massive spend on AI and the capex is drawing down cash flow significantly.
So, it’s nice to look at the launches; they are fantastic in terms of the launches and the landings in particular. But what multiple do you pay for that? I think, in my mind, an $80-$90 level probably seems more reasonable. But there was definitely a lot of hype around that IPO, and it needs to grow into that.
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