We will have a good 2023 in terms of economy and markets; top 3 holdings remain unchanged: Milind Karmarkar

“I’ve talked about it for a long time. We continue to be strong about that. I repeat these themes and try and visit the stores once every two, three months. The kind of crowds that are in it stores continue to confirm my thought process that these stocks will continue to do well. So, I continue to believe that retail stocks are likely to do very well,” said Milind Karmarkar, Fund Manager, Dalal & Broacha Portfolio Managers

In 2022, anything that can go wrong has gone wrong – high inflation, severe tightening by central bankers, a war. It’s been a tumultuous year. Have the decks cleared now for a strong 2023 because even though India may be doing very well in terms, for equity investors, 2022 will not be a year to remember well. Returns are in the single digits.
I agree with you that the returns are in single digits in many cases and negative too because the smallcap index is very low and most of the small investors are obviously investing in smallcaps. That is the concern but at the same time, in 2023, the outlook seems good even if there is a little fear in the news about important infections in China due to a new variant of Covid.
But as things go on. it seems like China is slowly getting back to normal because any photos and other things from friends in China, it shows that the lockouts have been lifted and because of that the general life is slowly becoming normal so I hope it The variant remains mild and will not affect the world economy much. So yes I am looking at a good 2023 ahead.
One of the most important areas of action for 2022 is interest rates. Buffett often says that interest rates act like gravity and as they rise, the markets fall. It’s not that interest rates have reached alarming levels but the pace of interest rate hikes is troubling the markets, consumers and home loan buyers. Don’t you think it will have an impact on consumption and market valuation in the way that equity as an asset class in a sense works?
This December rate increase both the Reserve Bank of India and shows that they are slowing down the pace. They did not say that they will stop the rate hike but it will continue for some time. Towards the second half of calendar 2023, I’m sure this means that rate hikes will stop and when that happens, we’ll see demand return.
In fact, demand has returned but the increase in interest may be affected and therefore the growth of demand may be slower but the second half ahead, things will return to normal ahead; For every increase, there will be a decrease ahead, maybe not immediately, maybe in 2024 and that prospect will drive the markets. We will have a good 2023 in terms of economy and markets.
“Back to recommendation stories
There is a very thin line between what is value and what is growth but in 2022, the whole value approach is reversed. Sasta, sundar, tikau (cheap, good and sustainable) businesses are back. What will happen in 2023?
What usually happens is that most of the stock value is in products or commodified products and while it is cheap, there is a purchase and it shows some kind of an uptick. In fact, they can provide good returns in the shorter term but longer term, I continue to believe that those businesses with a high growth trajectory tend to do well. Let me put it this way, it is PE after considering growth over a longer period of time and as long as businesses generate cash flow, businesses will deliver over a longer period of time.

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You have bought PSU banks. Do you think the trend in PSU banks is a one-year trend?
PSU banks will always remain a business and over a longer period of time, private sector banks will do well for the simple reason that they are more retail centric and even when the cycle has started in capex. Corporate credit also started to grow. Over a longer period of time, corporations tend to borrow from the stock markets in debentures and bonds rather than going to banks. The real growth in banking will come from retail, where private sector banks are very well established and that is why I say they are better than PSU banks in higher term.

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How do you see the entire consumer/consumer space performing? I am asking you this question based on two facts – there is a timely correction in some of the consumer staple stocks and some of the famous brand companies like or out of IT, are now going through a smart price and also on time. correction. Second, the revenge buying and the one-time demand for rerating that happened after the Covid, is unlikely to be sustained which means that the impact and the slowdown will start in some of these categories?
Let me bring you back to my favorite theme which is the increase in per capita income. Just as between 2003 and 2008 our per capita income increased more than two times, I would not be surprised if the same thing happens this time as well.

So apart from the shopping spree, there is more money coming into consumption mainly due to the increase in per capita income. As basic needs are satisfied, money will go towards consumption and that will drive the growth of these stocks. There will be a bifurcation in the sense that some sectors within consumption will decrease and some areas will grow more and that is where one should bet.
I continue to believe that retailing is very good whether it is grocery or not while as FMCG there is definitely growth but not like retail, that’s what I believe.
Have your top three assets changed from the start of the year and are you repositioning your top three or top five assets for 2023?
No, they didn’t change, they stayed the same because I always focused on consumption.
So consumption remains the main theme of our portfolio although we have added some industrials along the way and we will continue to hold it because I believe that the new capex cycle has started and continues, we will benefit because of the bag capex cycle and that. so we have some industrials in our portfolio. We also have travel and tourism related stocks in the portfolio.
What are your top three holdings?
I’ve been talking about Titan and Trent for a long time. We continue to be firm about that. I repeat these themes and try and visit the stores once every two, three months. The kind of crowds that are in these stores continue to confirm my thought process that these stocks will continue to do well. So yes, I continue to believe that retail stocks are likely to do very well.
You follow the Tata Group closely. That group saw a major rerating – whether it was Tata Technology or a Tata retail company or a Tata IT company. They currently command the best PE multiple at least in the sector. Is that a chance rerating under Chandra’s leadership? From a market perspective, is that over?
I don’t know because if you look at the US, which according to me is a basis for any democracy and which is on a great path of growth, you will see that most of the big corporations in the United States are if where there is a clear distinction between ownership and business. That’s what Tatas did. They always have professional business leaders and ownership remains separate.
I think that’s one of the reasons why I believe that the Tata Group will continue to grow the way it has so I don’t see any change in the restructuring of the Tata Group and I think the rerating will be justified by the growth they have shown.

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