Earnings growth in first 2 quarters of FY24-25 were in the mid single digits – a significant miss from projections at the start of FY24-25 which were in the mid-teens range. Full year numbers are consequently getting revised downwards, which is keeping markets in check – apart from flows to the US post elections as a Trump trade on strong dollar, low taxes etc.
Urban and rural consumer lending – including microfinance, credit cards and personal loans – have seen some stress – and this will take a few quarters to come out of. Similarly, slowdown in urban consumption has taken place – and will need time to get out of. Retail lending and certain pockets of consumer staples and durables will likely continue to face some challenges for a few quarters.
What may bounce back sharply is infra spending which slowed down during elections – we are likely to see a strong catch up in second half and therefore annual numbers may not get materially impacted.
The correction caused by this earnings reset has brought many stocks back into GARP zone. This correction may also likely see reasonably valued large caps coming back into favour, which might help correct the relative underperformance that large caps have seen compared to smaller stocks.
HDFC Top 100’s near term performance was negatively impacted by having much smaller exposure to broad markets compared to peers as it chose to remain a true to label large cap fund. Few key stocks with active weights also underperformed in last few quarters – but Rahul maintains his conviction in them and is confident of them bouncing back soon.
Overweight stance in large private sector banks impacted performance in particular – however Rahul believes flight to quality amidst retail lending challenges will benefit the large private sector banks, which have favourable margin and volume growth outlook coupled with reasonable valuations.
He currently finds select stocks in pharma, telecom, power and consumer sectors fitting into his GARP framework – which find prominence in the HDFC Top 100 portfolio.