Why Venugopal Garre is bullish on Bharti Airtel, Adani Ports and Avenue Supermarts

"The perspective is very simple that macro for India as I had indicated in January had bottomed out and more importantly, we are continuing to see some degree of improvements in macro," says Venugopal Garre, MD, Bernstein.

I want to first start off with your January upgrade thesis. While you were right about as to how there is going to be a spree of rate cuts and there is going to be a macro recovery in the second half of the fiscal, but tell me with a 50 bps rate cut already implemented by the RBI and then there is so much uncertainty across the globe, what is the view right now on how India is going to be shaping up?
Venugopal Garre: I guess in January when we spoke post the upgrade, it looked like an impossibility to expect any degree of positivity on the Indian market because the push back was very high, macro was very weak in second half of last year and as I was very cautious in second half of last year, my broader thesis to a large extent interestingly remains intact even today. So, what it means is that I still have a positive outlook on Nifty with a 26,500 target. The perspective is very simple that macro for India as I had indicated in January had bottomed out and more importantly, we are continuing to see some degree of improvements in macro.

The second perspective was that I was actually expecting around 50 basis points of rate cuts but that has already happened and I do believe that as you mentioned uncertainty, uncertainty globally is actually good because that could lead to more rate cuts and more importantly from a regulatory standpoints and rbi in terms of what they are doing to ease liquidity in the banking system as well. It is a very positive in terms of how things would shape up through the year and early next year as well.

The other important point is that both capital expenditure which I was indicating and consumption will be slightly better than last year.

So, the rate of change of course is going to be positive compared to what it was last year, but all these factors I told you is not going to be so amazing that we can think of 25% or 30% returns from India, so this is the only limiting factor for me.

Is not there a currency risk to that because while rate cuts is, of course, one part of the story, the other one of course is currency and the dollar parity and looking at the world the way it is right now, the rupee depreciation I guess would be a big risk.
Venugopal Garre: Yes, it is pretty interesting and a deep topic because currency the beauty of it is actually no one knows. I have seen lot of theorists trying to take a call on currency and mostly people go wrong. So, let me tell you my theory with the risk of going wrong, broadly at the beginning of the year my view was that dollar index has peaked out, that was the view written in our report and the dollar index over time will moderate.

I did not expect a moderation within the first three months, over time through the year will moderate, which will enable primarily India to cut rates, so without having to worry about currency depreciation, so that was a broader thesis.

But remember at that point of time we were aware of tariff risks, but we were not aware of 100% plus tariffs. We were not aware of those issues. Now, fundamentally from here what is the risk? The risk from here is if us and China eventually continue to be in the current situation, nothing improves out there, there is going to be excess supply of products or capacity with China. Now what does China do with that eventually?

It is going to find its way into the global trade ecosystem either through dumping of products or through currency changes. So, my biggest fear from here is not about dollar index, but what directly happens to Chinese renminbi and what they actually do from a policy standpoint later in the year when we have an idea of how these things are shaping up and that is when emerging market currencies including India potentially could be at some degree of risk. It is somewhere down the line, but not today.

It is heartening to know a note and given the fact that yes, you do have been maintaining a positive stance on India and it is pretty uncertain time and you have written in one of your note that running a portfolio also is no easy task which means that the way the events have panned out, the complexity of the event also makes it very tough to actually align your portfolio to these trade talks especially back and forth of this trade talk. So, help us understand how have you actually now tried to devise your portfolio given the fact that you have a list of stocks that you are looking at right now?
Venugopal Garre: Yes, that is true. Honestly, it is very tough to build portfolios in such a volatile environment. Interestingly, the way we approached it is this year was since I was looking at a broad macro recovery and I was cognisant of the global risks, the idea was not to eliminate the entire global risk that is highly impossible to do that and probably portfolio sense also it is wrong to do that. The second theory for us was to look at recovery candidates from a stock standpoint with the risk that we could go wrong on some of them, but the idea was to play recovery.

The third was not to be ultra defensive, but have some defensiveness to the portfolio because none of us like losing money. So, these are the three characteristics of how I looked at things this year. So, beginning of the year the way our sector weights worked were that we felt that domestic stories should have a higher weight which essentially meant that I ended up having my highest overweights in the financial sector.

I have overweight on telecom and I ended up upgrading utilities to an overweight. So, these were the three defining overweights for us. We had moved to an underweight in healthcare, remember that was a globally exposed sector. Now after three months of underperformance we are equal weightish healthcare.

We had a marginal overweight on it services beginning of the year, we actually cut down the weights quite a bit through the year and we are now more equal weightish, but not underweight it.

We are still playing it with particular stocks and this is the conduce of sectors. But from a stock standpoint if you look at our India portfolio, has not really tweaked much in the last four months but has recovery candidates which we had sort of in included in that portfolio, something like Bharti was added to the portfolio, Adani Ports was added to the portfolio.
So, we had some consumption names like Avenue Supermarts and we booked profits in the Zomato but got do Jubilant. So, it was a very wide range of bottom-up selection honestly.