See Strong Earnings Momentum, Especially In Mid & Small Caps: PGIM India AMC

Added: 2026-05-26

[00:00:00]as well as we speak. That said, let's uh welcome our guest. We have Aniruddha Nahar, the CIO at Alternatives Alternates PGIM India Asset Management joins us on the show. Hi, Mr. Nahar.

[00:00:13]Good afternoon. Good to see you. When Well, you know, how are you all feeling about the current market setup?

[00:00:18]Hopefully, we're coming towards the end of this war and de-escalation seems to be the way we're headed in. That's the hope, at least. And if that's the case, then what would your deployment strategy be? What kind of cash are you sitting on? And are you gradually deploying or are you waiting by for a better entry opportunity?

[00:00:37]Hello, Nigel. Thank you for having me here.

[00:00:39]With the assumption, as you mentioned, that the the conflict is more or less coming to an end, we've gone ahead assumed it internally also and literally sitting on we aren't sitting on cash. More or less completely deployed. I think this quarter's earnings also was very very visible in terms of the strength of earnings across the market. Especially in the mid-small-micro segment. Large caps were not great, but they were okay. But if you start looking at the earnings playing out from the mid-cap to the small-cap segment and beyond, I think the earning strength has been exemplary.

[00:01:14]We haven't seen this kind of earning strength play out probably in the last eight out quarters. Going ahead, the next two quarters will get impacted because there would be logistical chains, the value chains across a lot of industries getting impacted due to uh availability of natural gas, diesel, logistics chains itself getting disrupted. But if someone takes a view beyond into 2000 the second half of FY27 and beyond, I think a lot of normalcy will come back and we believe the mid-small small-cap segment will continue to demonstrate very strong earnings growth. And that's where we've been positioning our portfolios.

[00:01:56]Uh Aniruddha, hi. Afternoon. Many companies seem to suggest that they will be able to manage the margin pressures on account of commodity inflation.

[00:02:04]Uh at least when we chat with them, what has been the overall feedback on which companies will be able to uh you know, manage it, pass it on through internal cost-saving measures, or some sort of a price increase? What will be the extent? Are we getting panicky?

[00:02:20]I mean, is the fear about commodity inflation overblown to some extent? What is your analysis?

[00:02:26]Look, uh so actually our view is if the conflict gets over, if there is some uh decisive uh news on that, irrespective of what the impact is in the next one quarter or two quarters, the markets will remain into a will continue to remain in a bullish tone because I think that a lot of uncertainty goes away. India's resilience India's reliance, sorry, on the Middle East is extremely high. So any sort of resolution on that on that front would be taken very extremely positively. Uh so our sense is yes, there would be converters. Uh probably they would be getting impacted by a quarter or so. They pass it on. You know, real branded plays like paints, etc., they have always through the history been able to manage margins and pass it on, and they never reverse it.

[00:03:12]So there will be a segment anything which is branded will be able to hold on to its brand. But generally, we wouldn't be too worried about margins. We believe there is going to be some impact into the next couple of quarters, but normal season should start coming back, and I think the bullishness in spite of the markets knowing probably the next two quarters will be a little uh you know, unpredictable. Uh markets continue to show the resilience purely from the fact that we believe the conflicts are probably getting over.

[00:03:40]Mhm. All right, Anirudh, uh you know, one of the sectors that'll be waiting for this conflict to cool off will be the uh alco beverage sector, right?

[00:03:49]Because out there the glass costs have spiked up, packaging cost as well have moved up, and otherwise, though people talk about consumption going down, in India there there appears to be a trend that you move towards premiumization, so some of these companies will gain. And I'm looking at it, I believe the consumer discretionary is one of your top sectors, and within that, United Spirits. So, cheers to that. Tell us more about your why you like this theme.

[00:04:14]We generally so glass our interaction with the management generally across some of them will be able to mitigate it with a quarter on this thing. So, there will probably be a one quarter pain. So, that's a very small it's a going to be a blip for many of these companies.

[00:04:30]Generally the spirits part whether it is you know the large caps or we've got names even in the small cap segment. We believe the penetration levels of branded alcohol if you take a longer term view is definitely on the lower side.

[00:04:47]Premiumization just as you mentioned one of the names you know that vacated the full lower end. So, that the focus on top as you know India premiumized some of these players will benefit. The margin profiles get better and the smaller guys who are probably there on the more commodity side probably get a chance to move up the value value curve. That is one. Secondly, among the smaller guys there is a mix of you know ethanol play along with alcohol. So, it is a double engine working out there with the government's focus on bringing ethanol up as a percentage in the fuel consumption part bucket. We believe generally alcohol and specially on the smaller side alcohol plus ethanol could turn out to be a very interesting play over a period of time.

[00:05:35]Anything else that you'd like to flag off? Any interesting research from your end?

[00:05:39]We generally looked down the market cap.

[00:05:42]We go down to almost a thousand crores of market cap. That's really small. But when we look across, you know, capital goods, textiles, uh agrochemicals and chemicals is a segment which literally people have uh discarded it over the Of course, the last 6 months things have started coming back. I think uh any cost pressure release on the raw material side uh would see some benefits play out there.

[00:06:07]Uh one interesting fact that we looked at is when I look at the Nifty per se, uh uh there is a segment of IT and then there is a segment of lending which are the banks primarily. They constitute together a large segment of Nifty. And the earnings in that bucket is is is will continue to remain subdued. So, the alpha generation in the Indian markets, uh I think a large part will come down will start coming from either mid-cap onwards and lower. So, our sense is uh Nifty might continue to do whatever it is, but the real action will probably continued in the mid-cap and the small-cap sector. And uh what about tech? You know, very divergent views, lot of news flow, the situation's very, very fluid. You know, my gut is that either those that are brave will make a lot of money or in fact, you know, this sector's going to get even more bombed out even from these levels. It won't be a very short range. It could be a big outsize reaction on the index itself.

[00:07:04]And within that, I believe some of these ER&D companies like KPIT, they are on your buy list. Uh how are you viewing tech and within tech, what are you looking at?

[00:07:14]So, our view on tech, we've been very underweight uh with no leading tech names actually in the portfolio. They're completely zero sitting out there.

[00:07:22]Uh we've picked up certain E& ER&D. We believe those sub-segments in the markets would continue to do well. If I look at the overall IT pure IT names, our sense is growth there will be probably 8 10% not more than that. For an 8 10% kind of growth, either uh I mean, I wouldn't play India for an 8 10% kind of growth. Very To be very frank, it's an emerging market.

[00:07:44]From that perspective, if I have to play it IT, I would want to play it when either the the growth is beyond 12% or the dividend yield itself for these stocks go up to 7-8%. It has to be in one of those baskets. Today, it's somewhere in between, frankly speaking.

[00:07:59]And hence, it frankly we've stayed away from this basket for now.

[00:08:04]Well, 8 to 10% on the top line, at least for now, looks like a stretch given the FY27 guidance. At least from the top line is of low single digits, but there will be some margin benefit on account of the rupee depreciation. But thank you, Anirudh. Great chatting with you.

[00:08:17]Let's talk about auto. The vehicle registration numbers are out for the month of May, and it's going to be a good May 2026.