The Real Reason FIIs Are Leaving India & Moving To Korea, Taiwan | Nirav Sheth On Markets, Oil Shock

Ajouté : 2026-04-29

[00:00:00]Nav Shade, CEO institutional equities at MK Global Financial Services with us on the show. Nav, good morning. Thanks for joining in. Could it be sell in May and go away for Indian markets or will it be um difficult to predict May until we know the resolution of the conflict.

[00:00:20]>> So good morning Niraj and you know I don't know why we do why you know we are even keen to predict what happens in May right. So uh you made a point uh that you know we can't necessarily call out uh the resolution of the conflict uh and the channel that it hits us through is obviously the capital flows and the current account deficits because of what happens to the oil prices. But I think the general expectations of the market is that you know there'll be a resolution sooner than later because if you look at the last I checked the December crude futures they were trading at about $74. the current brand prices are about $110 and all uh and it's very asymmetric. I've held this view for a long time. So far I've been wrong, right? So uh you know it's it's not that Iran is trying to win the war, right?

[00:01:10]They're just trying to have a saving face so that once you called out ceasefire for good, uh the current regime has legitimate reasons to rule, right? So uh yeah, so I'm in an optimist camp. uh you know you still have earnings growth in the region about 12% for FI27 uh trading at roughly about uh you know 70 odd times which is lower than historical last five historical averages uh yeah so I'm I'm I'm fairly constructive on the markets n >> interesting >> and I mostly am >> but nav the the point being uh the telltale signs are not necessarily the most positive because two things right we don't okay three things actually we don't know when the conflict will end.

[00:01:55]Frankly, at best, it's a guess. Nobody quite knows. Brent, as we speak, is at 111, which is what it was during the worst period of the conflict in in the last 30 days. So, in some sense, no respite from crude either. And almost every FI that we speak to or an inst or or or a broker who caters only to FI says that their clients have a lot of options right now. they don't want to come to India because other markets growing better are available cheaper. Why why should Indian markets do well?

[00:02:28]>> Right? So I think uh you know to get slightly into more details, right? So you can make a case that for example South Korea is cheap, right? Because earnings are growing very fast and that's a part of an AI trade.

[00:02:43]So let me give you a sense, right? You can argue that TS TSMC or some of these memory companies highix and all they're trading at about 8 or 9 times around 30%. The variability in their margins is from 5% to 85% operating margins. Right?

[00:03:01]Today you are operating at 85% operating margins right and therefore to try and assume that you will have peak multiples on peak margins doesn't necessarily make sense. So that is the nature of the that's the nature of the beast. It's like saying that you know Hindalco trades at six times to AITA. It deserves to trade at six times evita. Uh I I concede that unfortunately India is not there in this AI space ecosystem. That is something that we need to we need to find a solution to this. Right. I have my personal view is that it is it is it is a tremendously you know pathbreaking technology. Uh we don't know when it's going to hit us but it is surely going to hit us at some other time in the future. Uh to that extent we are not we are we are not a part of that EI trade and my personal assessment is that it is not so much about growth. It is about the fact that uh we just don't have an AI play and therefore you know when you're talking about a $5 trillion market cap of Nvidia when you're talking about 1.5 trillion market cap of TSMC we don't have a corresponding bet in the Indian market right and to that extent I think yes you know we'll probably will not be the favored market for the FIS now flip the question and think about it that what are the options that the Indians have You've got fixed deposit which is which is sort of getting you about five and a half 6%. Property markets are almost giving you a similar kind of returns. Uh and in the worst case scenario end up going 9 or 10% in the Indian market. So you should not get too worried about where the Indian savings are going till the time you open up capital convertibility. It is not going to happen for a long period of time. Um so yeah but it's a cause of concern.

[00:04:54]>> Okay N. Okay. So good point but um uh so the argument I think my opinion and uh so it should not be that we don't have an option and so therefore we have to invest in inequities that is actually something that shouldn't come to pass.

[00:05:12]I'm just focusing on the 12% earnings growth that is being penciled in. I'm wondering nav if that is a little optimistic giving what given what we know so far and the fact that Brent is likely to stay elevated uh as per anybody's guess at this moment it's at 110 plus. So do you think that you might have to revisit that uh maybe in the in in towards the end of the first half?

[00:05:39]>> Well, very possible. So one of the thing that we want to keep in mind is that the 12% earnings grow we are talking about now for FI27 also comes on the back of the fact that my FY26 earnings may have been downgraded to some extent right so also please try and appreciate the fact that let's say this complete to continue for three or four months that is very likely that we will have couple of percentage notches downgrade in the earnings that doesn't do anything to my FI28 earnings please understand that you know there is only so much valuation that you will give to my next two quarter earnings lot of the value for most of the companies will sit in terminal value right unless you are making a case that India is a banana republic and then so even if you take $110 today the total hit to the government right if I don't increase my retail prices of the petroleum will be close to about three lakh crores on the entire year you are running you are running a gap of roughly about 15 or 18,000 kores a month on petrol and diesel and you add about another 8 or 10,000 k that is coming because of reduction in excess duties that the government has taken. Uh is it a hit? Of course, it is a hit. But do you know can we take that on our chest and move on? Of course, we can take it on a chest and move on.

[00:06:52]Okay. To what extent and n the followup to that is that the impact of this is going to be unequal just as geopolitically and if you look at it globally the impact of the conflict is also unequal. If you look at higher energy costs, there will be pockets of resilience relatively speaking and there will be opportunities to be had as well.

[00:07:17]People have been talking about the energy transformation story as one of those. But the only point is that if you look over the last one month, the kind of rally that you've seen across the board in April means that if you're trying to deploy right now, quite a few of those opportunities don't look as mouthwatering as they did earlier.

[00:07:39]>> Yeah. Exactly. Because you know month back you would have worried more about what is going to happen to the conflict.

[00:07:43]Is exactly what we are discussing right now. And there's a price to pay for that, right? So every time that you want to have more certaintity, you'll have to end up buying something at a price which makes you slightly uncomfortable. Uh but but but I'm in the same camp. I think electrification, renewables, these are big things and it's high time that India understands that you are spending about $110 billion on oil. Uh you know why would you not spend couple of billion dollars in subsidy and try and you know forcefeed the electrification story going forward and this will happen uh as we move forward. So yeah, you will need to be slightly more uh uh you know the point I'm trying to make is that it is it is during this period of uncertaintity that you'll have to try and deploy the capital right so we we've gone through pandemic and see what has happened right you are you're nowhere close to what was happening in pandemic so uh and uh and and we'll have this kind of problems occasionally it it happens all the time there's nothing new >> okay nav I saw a note from the house of MK around how your 13-day trip to China leads you to believe that there is um uh maybe a cycle of sorts coming into chemicals. In fact, if I'm not wrong, the note said that for bulk chemical producers, there could be a new bull cycle coming. How tell us because this sector has been a bit of a slumber for the last 5 years.

[00:09:10]>> Well, I'm not an expert on that. I think uh the limited point that I think the note tries to make is simply the fact that and this is a well-known story the involution story that we are talking about in China for a long period of time we are seeing that is now being play played out even in electric cars just look at the B results that were declared yesterday right the profits are down significantly so I think it is coming to a state that beyond a point of time you know your cost structures move up that the price have to move up and that is the limited point that we are trying to make over there and obviously the stocks have not gone anywhere over the last 3 years. So you had a pandemic induced supply shocks, the prices ran up, the profits picked out and from that there's been consolidation and we believe that that consolation phase is by and large over and then within that you look at which are the chemicals that try to benefit and which are on the positive side of the trade. Uh but yes the limited point is that there is a pricing discipline that seems to be coming around in parts of that sector for sure.

[00:10:11]Okay. Um, Nita, one last question.

[00:10:14]Autos, a quick one minute please. But autos peeking out, you think? Uh, I mean market discount 6 months ahead, GST benefits will go away or the base effect will go away, oil higher, etc. Auto peaking you think?

[00:10:26]>> So I think that we've got a fair line of visibility in terms of where the volumes are going to head. uh but our understanding is that uh you may want to look at four-wheelers with a different spectrum and two wheels a different spectrum. Uh there is far more disruption that is happening in four-wheelers, right? So you got this Nissan and Reynold and all of them are coming back. Electrification is picking up and new leaders are emerging in that space. Right? And you had a similar kind of deception that happened in two wheelers which is now well settled.

[00:10:54]Right? So you got a and you've got one more guy and then the incumbents have come back very strongly in that space.

[00:11:01]So we are far more constructive on the two wheeler space. Uh and then we we believe that against passenger vehicles probably even commercial vehicle makes sense. Obviously you know there are concerns about increase in diesel prices and all that but the volume trajectory and the competitive scenario over there is far more secure for the incumbents than it is for the passenger vehicles.

[00:11:25]So that's a broad take. It is not so much about the volumes for cars but in terms of how that profit mix shapes up in next couple of years and the valuations will depend on that.

[00:11:35]>> Okay Nav, we'll leave it at that. Thanks so much for taking the time out and being with us today. Really appreciate your time.