What is aiding this market irrespective of the global handover? We seem to be defying gravity; a 3% move last week and another 1% right now?
I think the momentum feeds on itself and we are probably seeing a bit of that. Obviously global markets have helped and incrementally speaking, if you look at the last 15-20 days of news flow; while the Covid infections continued to be at a very high level, incrementally some of the data points have come out on the slowdown in the moratorium numbers for banks and even some of the businesses which we have interacted with seem to be indicating that the first half of June has been better than what the market had expected.
Obviously this is not the end of the story. I think some of that improvement could be a function of just restocking or pent-up demand. So it will be a while, maybe another three months, before we actually get to see the underlying impact of Covid on incomes and consumption. But for the time being, the margin news seems to be improving and that has added fuel to fire.
If I take a look at the 2,700-point move that we have seen from the March lows, about 1,400-1,500-point contribution has come in from Reliance alone. Do you think it is time for some consolidation to play out in Reliance or do you think because of the fundamentals that are working behind Reliance with that 11th cheque coming in, they are becoming net debt free. Do you think there is a case for further upside from here?
I would not be able to specifically comment on any particular stock but some of your observations are right. In times like these, the companies which were well-positioned in terms of their businesses are actually gaining from Covid. Even chemicals or pharma are going to look better off post-Covid than pre-Covid and I think some of that is reflecting in the stock price, which is probably much more than what the market was expecting.
The movements have been sharp in some of the names you have mentioned. I think if the recovery momentum continues, we have to see it week by week and month by month because the Covid trajectory is still not settling down. As I said, the market will also become broad-based. It will spread from largecap to midcap. We are seeing some signs of that already in chemicals and agro chemicals. I think it could spread a bit more into more consumption names as we get more and more clarity on the recovery path. So it is not a question of just one or two stocks; I think it is also a question of which businesses look better post-Covid than pre-Covid. Two, if the recovery trajectory continues then the market will also become broad-based within largecaps and then obviously mid- and smallcaps.
We are yet to see the extent of the impact on earnings but we have been hearing commentary particularly on the consumption side that there is a pick up that companies are seeing. Is there merit in buying into that at this point or would you rather be looking elsewhere; even at companies that are more linked to the global recovery and seem to be a lot faster paced?
No, I think this is a situation where you have to look at each sub-segment of consumption separately. You cannot make a very generalised statement on consumption. So there are staples and discretionary and within discretionary also, there are various grades of discretionary. I think each company’s ability to react to a situation like Covid is also different. Some companies have bounced back faster and harder.
So what we have to really look at in a situation like this is we cannot be too theme-driven. We cannot be very thematic in this market. Yes, there is a theme of China and contract manufacturing, chemicals, pharma and maybe telecom; so there are one or two themes like that but this is the time when the weaker stocks and the stronger stocks would tend to actually get separated; even within midcaps. So we are looking at it at a more bottom up manner. Rather than trying to call a broad recovery, I think it is each stock for itself and each company for itself.
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