Sunday, April 23, 2023

Welcome to The Weekly, where our team shares a few thoughts to take you into the week. This week’s thoughts have been brought to you by Sagar Lele, Founder of Rupeeting. He also manages the All-Weather portfolios.

China Being Infosys 🇨🇳

We’ve been positive on China since the beginning of 2023. The view was driven by simple reasoning. While the world is at the risk of dipping into a recession, China’s is at the beginning of an expansionary phase, which will be fuelled by domestic consumption, fiscal stimulus and a supportive monetary policy.

China’s GDP projections however appeared quite tepid, with the government expecting 5% growth in 2023. That seemed to disappoint the markets, and put a pause to the rise in Chinese equities. But we reckon the lower-than-expected projections are more like the game Infosys used to play back in the day - guide low and deliver high.

A few data points over the last month have only substantiated our Infosys analogy for China.

1. China’s exports jumped 14.8% in US dollar terms in March 2023, compared to a year ago, whereas economists forecasted a 7% fall
2. Retail sales grew 10.6% in March 2023, the biggest jump since June 2021
3. Manufacturing investments rose 7% during the first quarter of 2023, pumped up by higher factory output
4. The property market is finally showing signs of a bounce back, with prices swelling at their fastest pace in 21 months
5. The economy grew by 4.5% in the first quarter of 2023, outstripping expectations of 4%

Clearly things are picking up, and many, including Goldman Sachs now believe that China’s GDP will outpace its own expectation of 5%, and instead grow by 6% in 2023. This is steep compared to the 3% growth clocked by China in 2022.

In any case, while the world is slowing down, China is rising. And valuations seem extremely supportive of a strong positive move on Chinese equities given the fact that valuations are at a discount to its own 5/10/15 year averages.

In our all-weather portfolios, we’ve taken exposure to Chinese equities using the Nippon India Hang Seng BeES. However, there are some other options available as well: Axis Greater China Equity FoF, Edelweiss Greater China Equity Offshore and Mirae Asset Hang Seng Tech ETF.

Idea - EPL 🪥

Colgate, P&G, Unilever, L’Oreal, ITC, Patanjali, and Himalaya - apart from being renowned brands in their respective fields, they are also tied by another commonality - the need for tubes! Whether it is toothpaste, face cream, ointment or even certain foods, all these companies source the tubes that they sell the products in from one company - EPL!

With a 19% global market share in the tube industry, EPL has been a monopoly for decades, making its investors 5x from listing to date - but what else makes it special?