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00:00Sheshadri Sen, Head of Research and Strategies at MK Global Johnson right now, from the venue
00:05of the conference. Sheshadri, great having you. Thanks for joining in. You know, I was,
00:10I was, this is Neeraj here. I was reading your note yesterday, when you mentioned that at the
00:14end of day one, the corporate commentary was sounding very constructive. I would love to
00:22understand if that is the cumulative view at the end or near end of the first two days of the
00:28conference. Yes, pretty much. I think, you know, the most important takeaway from the,
00:37from the, from the corporate commentary is that most Indian corporates, especially,
00:43and as we go down the market cap curve, that becomes a little stronger, surprisingly,
00:48are in a very strong growth mindset. There doesn't seem to be, you know, any flinching.
00:54There's been some setbacks in the last, say, two or three months. But nobody's, you know,
00:59I don't see any confidence getting dented. The medium term view, two to three year view across
01:05most sectors is that growth is, the growth outlook looks very strong. Nobody's pulling back from
01:11their capex. Yeah, of course, near term, there will be some volatility, maybe a little bit of
01:16pricing pressure in a few sectors. But, you know, the longer term, especially in the B2B space,
01:23we are seeing that the confidence of the management continues to be very strong. And
01:28that is the basis for this bull market, you know, that this is a, you know, the B2B space,
01:34the entire manufacturing space has seen a major turnaround post COVID, both in terms of earnings
01:41and growth outlook. Sure, some of those areas are, you know, valuations are a little stretched.
01:48But we, you know, there's no, no arguing that the long term growth outlook for these sectors
01:53remain very strong. Okay, Seshadri, what stood out because I know, we were there at day one,
02:00right. And, and our team is, of course, there for today as well. But because I was there yesterday,
02:06energy was the cornerstone, somehow energy, recycling, team and some others came,
02:15came in conversation with participants out there. So what from the corporate commentary thus far
02:22that you may have heard, or gotten feedback from your analysts or from your clients,
02:27from which themes has the commentary been the most constructive?
02:38There have been positive commentary across a lot of spaces, green energy, certainly,
02:42green energy is one area, you know, the entire green, green space is something that we all know,
02:48we all know that, you know, India, you know, long term has to decarbonize,
02:53that is opening up opportunities in many sectors from green energy to recycling to,
02:59to, to, you know, allied sectors. And, and the confidence that the corporates have in that,
03:08that sector, that this is something that I think we've crossed the hurdle where there were
03:15question marks, maybe five years ago, is green energy sustainable, bad choice, what green energy
03:21is it profitable. But I think those issues have been sorted out. And then the dependence on
03:27government subsidies is reducing. And, and we certainly that area, you're right is one area
03:34where we actually hearing a lot of positive commentary. The other is the overall industrial
03:38space, the entire capital goods and that entire sort of universe. Sure, some of the valuations
03:46there are a little stretched. But there's no, absolutely no worries about growth there. The
03:53order books are looking very strong, the execution is proceeding fairly well. And the big factor
04:00there is that the long term order books are looking very good. Even the most conservative
04:05managements are there are investing in fresh capacity because they see visibility on growth.
04:10And as we all know, in the post COVID world, balance sheets are very strong. These companies,
04:14though they are investing in growth, are doing it through a judicious mix of their own internal cash
04:20flows, equity and debt. So despite all that growth, we are not seeing balance sheets getting
04:25stretched, which has happened typically, especially in the cyclical sectors in the past. So,
04:30so these are the two areas, green energy and capital goods, where we're seeing a lot of
04:35confidence come through from the management. Sure, Mr. Sain, this is Harsh also joining in,
04:40just wanted to quickly have your take. You know, you've spoken about plenty of positives, but
04:47anything on the CAPEX cycle, because we've waited long enough with regard to when the CAPEX cycle
04:53will start, any indication of managements or any conversation around this, which gives you
05:00better feelers of a possible CAPEX cycle on the annual? Let me answer that in a slightly nuanced
05:10manner. Companies with respect to their own historical CAPEX are stepping it up. So we are
05:16going to see corporate CAPEX picking up speed over time. If you look at it from a macro perspective,
05:22that number, however, is not a very large number. The entire CAPEX cycle for the country and for
05:28the economy as a whole will continue to have to be driven by the government, where again,
05:33we saw in the recent budget, they've not taken a step back, right? The government CAPEX program
05:38also continues to be fairly strong. If you look at the macro numbers, corporate CAPEX will always
05:43form a relatively smaller portion of the overall CAPEX. Now, we are lucky that both engines are
05:50firing, both corporate CAPEX and government CAPEX are doing very well. But for the longer term,
05:57we think that government CAPEX has to sustain and we are quite confident that it will.
06:02Sure. And Mr. Sen, a large number of participants,
06:06especially the companies coming to the forum, have been within the SMID segment.
06:12A lot of research analysts on the street seem to believe that an earnings catch-up
06:20is necessary, especially in that space.
06:23Are you also of that view and do you believe that is expected to happen? Is that a reasonable certainty?
06:29The SMID space is very big. It is very difficult to generalize like that. Certain pockets of the
06:37SMID space, I agree, the valuations have run ahead of themselves, earnings will catch up and the
06:43stocks could do a time correction for some time. And SMID stocks tend to be volatile,
06:49so time corrections could quickly turn into price corrections as well.
06:53But that's a part of the SMID space. It's such a vast space that there are always opportunities,
06:59even with sectors which from the top look overvalued. If you dig deep down, you will always
07:06find reasonably valued companies at an inflection point on growth or at an inflection point on cash
07:12flows, where we will see some turnaround in the future. So, there is a lot of opportunity there.
07:20So, I would say that as a generalized comment, it may be accurate. But then if you go dig a little
07:31deeper, we think that SMIDs will always drop opportunities. The broader story that we think
07:36that over a 2-3 year time frame, SMIDs will continue to outperform large caps as they have
07:42done in the post-COVID bull market, that trend is not about to change. We think that SMIDs are
07:46the driver of the market for the next 2-3 years, primarily because the earnings is getting
07:54democratized and valuation is, there are better pockets of value available in the SMID space.
08:01Got it. Thank you so much, Mr. Sen, for speaking with us,
08:05for taking our time and for giving us that quick take on everything that's been happening.