We have seen some participation again coming in commodities, cement and auto stocks, says Partner & CIO, Sarthi Group.

Our markets have been in great momentum since last week. Do you sense that there will be other leaders who will join the rally? Do you sense that a broader participation is in the offing?
Yes, Indian markets and the market globally have been giving continuous surprise and a larger percentage of market participants have been expecting corrections looking at the negative news flow mainly related to Covid. Nobody expected this kind of up move. But the market always surprises you. It would not move the way the consensus is expecting. Of course, it has been led by a few things. One clearly is liquidity inflow. So globally as well as in India, the money is not finding other asset classes on a risk-return adjusted basis as attractive as the money is finding equity to be.

Two, of course there have been indirect positive sentiment boosters in the Indian market by way of successful money raising by a lot of companies. So if we look at the market recently, we had ICICI Prudential and ICICI Lombard where ICICI was able to successfully sell its stake and raise money. Before that, it was Bharti and Kotak.

Coming to market, yes Reliance was the large contributor to the rise. If we continue to see the positive news flow or the sentiment being maintained and if we continue to see the money coming in, the leadership will have to be taken by some others and to that extent if we look at the market in the last few days, some bit of leadership has shifted towards the banking stocks; not that public sector banks have a larger contribution. But that is where we have seen some participation coming in.

We have seen some participation again coming in commodities, surprisingly oil which always remains a short-term trading bet, and cement. So yes, we will indeed in fact see automobiles. That also on and off has been contributing to the rise in the market. So that is where we are and yes, we can continue to see the sector and stock rotation going forward.

Where within cement are you finding promise?

One of course has been the demand scenario in the month of May and June. Before that also, if we look at the March quarter numbers, the volumes were down anywhere in the range of 5% to 15% leading to the top line being down but the tailwind that helped the cement companies was the softer raw material prices, which resulted in significant increase in margins in absolute terms. EBITDA per tonne for a lot of companies despite sales being down was a very positive thing.

Very clearly, if one does a secondary market check, there has been a sharp demand pick up from the rural areas and also surprisingly from some of the infrastructure projects coming in the months of May and June. There could be multiple reasons. There was a latent demand building up because of the lockdown in the month of March and April. Again before the monsoon, the urgent and important work that were completed could have led to this pickup in demand. So we will have to see how it sustains going forward once monsoon starts all over the country, especially in the months of July and August.

Having said that, yes, currently the demand continues to be good. The tailwind of raw material which was there in the March quarter also continues now. So that will be the supporting factor even in the June quarter numbers. So overall, the view on the sector continues to remain positive. In the short term, we have seen quite a significant participation coming in. So one does not know how stock prices will behave in the short term but yes, medium- to long-term looks good for the cement sector. So one should remain within them with a positive outlook.

Everyone thought Bajaj Finance is one franchise which is over-owned. It went from Rs 1,800 to Rs 2,800 in the blink of an eye. What do you think has changed?

Yes, you cannot rub salt in the homes of the people but yes, you are right. As we all know, few developments happened. Initially the market correction started with Covid. RBI announced the first moratorium of three months and obviously that was being seen as having caused some uncertainty to the businesses of NBFCs and even other lenders. Now that is where the management gave some kind of guidance or outlook on what will happen. The results came in and a lot of provisions were taken not only by Bajaj Finance but by other NBFCs and lenders as well.

The tipping point probably came in when RBI announced the second moratorium and that was suddenly seen by the market as something that can lead to more than required pressure on the company in terms of their asset quality; they expected worsening with some of them turning wilful defaulters even if they have money or turning indisciplined. They may not want to turn wilful defaulters but they might turn indisciplined. So that is where we had a concern coming in. But what happens is that whenever our markets recover, whenever inflows come in, especially the institutional money, both global and domestic, it looks besides good financials and fundamentals. It looks for two-three other things in companies; one, good management, corporate governance, ethical practices etc. Two, market cap should be on the higher side and three liquidity.

That is what happened in the case of Bajaj Finance as we all very clearly know that leaving the banks aside, within the NBFCs, this is the largest in terms of market cap, business, assets under management, number of clients, number of borrowers and any other parameters. In fact the management intentionally also took the decision to not lend aggressively till the situation normalises. So this is what happened. Of course it has left market participants surprised. We have seen almost 50% sharp recovery in the stock in 10 days largely led by the requirements of buying into a quality business by institutional investors.







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