Nepean Capital

Mar 15, 2022

9:15 AM IST, 15 Mar 2022 8:37 AM IST, 15 Mar 2022 9:15 AM IST, 15 Mar 2022 Save Nepean Capital LLP is staying largely in cash as the investment manager does not think that correction for Indian equities is over yet, according to co-founder and Managing Partner Gautam Trivedi.Starting with the U.S. Federal Reserve raising key interest rates during its March 15 meeting, a lot of news is yet to come out and may not necessarily be positive, according to Trivedi. "Inflation is spiking and we have seen the impact the ... Nepean Capital LLP is staying largely in cash as the investment manager does not think that correction for Indian equities is over yet, according to co-founder and Managing Partner Gautam Trivedi. Starting with the U.S. Federal Reserve raising key interest rates during its March 15 meeting, a lot of news is yet to come out and may not necessarily be positive, according to Trivedi. "Inflation is spiking and we have seen the impact the Ukraine-Russia war has had on the global commodities, not just on oil but across the board." “That impact hasn't hit India completely yet. And it's a matter of time before the RBI is indeed compelled to raise rates following the Fed at some point,” said Trivedi. Indian equity benchmarks are still trading nearly 9% lower than October highs in spite of a pullback since last week. Initial concerns over valuations gave way to inflation-spurred faster rate hikes globally, prompting worst foreign fund exodus on record . Russia's invasion of Ukraine and the crude spike that followed spooked them even more. Sectors In Focus Nepean Capital expects the pandemic-driven boost for Indian tech companies to sustain. Yet, it's shying away from deploying cash in this segment for now. Valuation of Indian tech companies are determined by the valuation of peers in the U.S., Trivedi said. "If you see a correction in the States, the impact is immediate in the Indian equity markets." Only when the U.S. valuations bottom out will the stocks of their Indian peers bottom out, he said. “If a company like Facebook can have a 51% correction, which has got not just EBITDA that has really picked up but even real profits, that tells you a lot about where this sector still is headed. And the correction may not be entirely overlooked." Nepean Capital, however, continues to prefer IT and the hotels industry. “Real estate has made a significant comeback and on the back of that it's a matter of time before cement picks up as well." Ethanol-Driven Rerating Until a couple of years ago, sugar companies were merely looked at as sugar companies and their fortunes fluctuated with rainfall and minimum support prices. States like Uttar Pradesh would determine what the final price would be. “That image of the sugar companies has undergone a transformational change,” Trivedi said. Ethanol is increasingly becoming an important element of the revenue stream and, as a result, people are starting to give them the benefit of doubt, he said. These companies have gotten significantly rerated, he said. Supply-Chain Disruption China’s tech hub Shenzhen is under a lockdown again to control the surge of Covid-19 cases. “I hope the problem in China doesn't spread to other cities, but if it does, there will be a real problem with supply chain,” he said. The situation could, however, benefit certain export industries in India, especially textiles, Trivedi said. “I just hope the Indian textile companies take advantage of the situation right now and are able to make significant inroads with their customers.” Watch the full conversation here: