Daily Voice: This financial expert discusses his optimism over the premiumization issue

Daily Voice: This financial expert discusses his optimism over the premiumization issue

According to Abhishek Banerjee, markets are not factoring in any black swan in the election, which might lead to dramatic outcomes.

The founder of Lotusdew Wealth and smallcase manager/CEO Abhishek Banerjee is a big believer in the premiumization topic.

"Premiumization experiences a flywheel effect as per capita rises. In an interview with Moneycontrol, he said, "Brands that offer exclusive promise of quality will see growth in this decade."

With over ten years of expertise in asset allocation, portfolio creation, and quantitative investments, the certified alternative investment analyst feels that markets are more concerned with policy continuity than political continuity.

"I do believe that markets are not factoring in any unexpected outcomes from the election, which might lead to dramatic outcomes. There seems to be agreement on a modest election result," he adds.

The premiumization subject is one that most analysts believe will be relevant in the next years. Do you share my positive outlook?

Yes, in a big way. A flywheel effect occurs in premiumization when per capita rises. In the next ten years, there will be growth for companies that provide a unique guarantee of excellence. Manufacturing in all its forms—construction materials, automobiles, textiles, consumer durables, fast-moving consumer goods, and financial services, including asset management and banking—will see it.

High-touch brands, in our opinion, will be just as successful as digital platforms. Both have a great deal of space to expand. The expansion of telecom and internet services is one example. This is a decade of advancements, in our opinion.

Our primary focus is on plays that enable product and service distinction, exclusivity, and humanization. Although internet companies broaden the market, exclusivity offers an equal potential. One instance from the financial services industry is the concierge layer that credit cards use to draw in high-end users.

Do you believe that, in the next years, the telecom industry will be the greatest to have in your portfolio?

The telecom industry wants to boost its average revenue per user, or ARPU, and the only way this can happen is if the regulator, TRAI, permits business models like unequal access. For premium clients, there must be an increased number of value-added services accessible on demand.

We believe that privacy, security, and exclusivity are important developments to keep an eye on in the telecom industry. Private numbers that don't appear in caller ids may serve as an imaginary example.

In addition to the previous question, do you believe the third telecom player will be able to endure and turn a profit in the years to come, particularly in light of recent capital raising?

Customers always benefit from having more players. We have consistently produced duopolies in the Indian market for whatever reason. Conglomerates used to be able to outcompete competitors because they could raise money and enter markets more quickly than upstarts. However, it is no longer the case. Profit pools are more widely dispersed, but India has fierce rivalry, which often results in consolidation.

Controlling expansion is crucial, but we also need to provide room for new services and business models to arise from telecom providers' enormous market reach.

Considering the government's growing emphasis on infrastructure investment, should one continue with the capex theme?

Government capital expenditures have grown in importance since the government currently controls 40% of GDP via its spending programs. Additionally, because a large portion of it is spent on public goods and services, the money that businesses make from this spending pattern will be crucial.

We are particularly enthusiastic about businesses that will cater to the public and business sectors that stand to gain from higher government capital expenditures—transport, packaged foods, and travel and tourism, to mention a few.

Are you persuaded by the evidence that a Fed Funds Rate Cut of more than 50 basis points might occur in the second half of 2024?

What we are seeing is quite concerning. US inflation is higher than expected and GDP is lower than expected. The Fed will be in a very tough situation if US unemployment increases since they are unable to cut rates. When combined with rising inflation, one of the vectors—the softening of employment—begins to take hold, making it very difficult for the Fed to provide forward guidance.

But especially since the 2008 financial crisis, we have been closely monitoring rates as a crucial component of PE pricing. More profits from new capital expenditures will drive the breakthrough than lower rates and lower cost of capital.

Despite being a short-term perspective, do you believe that the market has already factored in the likelihood that the present government would continue to exist beyond the Lok Sabha elections?

Policy continuity is more important to markets than political continuity. Markets, in my opinion, are not factoring in any unexpected outcomes from the election, which might lead to dramatic outcomes. It seems that most people are in favor of a moderate election result. But we also face problems like the underwhelming monsoon, geopolitical tensions leaking into the oil, or us having to choose sides in an international war.

We don't often consider the very real good and bad effects that they may have. Having said that, I cannot conceive of a market that is bigger, deeper, or more diversified than India, particularly when it comes to Indian equities. We should take full advantage of this market, since local investors often have preferential tax treatment and access over other investors.