What are you making of the market temperament?
Till the market continues to go up, it goes up. You should not be trying to go ahead of itself and do anything contrary to what the market direction is. However, the valuations and the kind of pricing that we have managed to reach back so fast frankly has surprised me. At this point of time, it may be prudent to start pruning positions because the rally has been swift and especially many of the midcap and smallcap have gone up significantly as has the index but obviously the broader market has also reacted.
Therefore it may be a good time to actually look and cull some of the positions where you have perhaps struck on and clean up the portfolio and wait on the sidelines a bit. I am not sure if the rally can continue forever. After all there is a fundamental number that will come through, which will not be positive. Therefore at some stage, reality will come. I am not, however, recommending that you stand in front of the market and try to fight it.
Of the 2,700-point recovery that the Nifty has seen from the lows, 1,500 points has been contributed by Reliance alone. Do you think some sectors will take leadership and if so, where will that leadership come in from?
I think there can be some amount of bottom fishing that may drive some of the other stocks up. But I do not think there is a leadership sector in the real sense. If you look at it, some of the public sector companies all the way from BHEL to the public sector banks are all apparently very cheap but are they the ones that are going to lead the market and make a new high? I do not think so because there is a very good reason that they are cheap. They are cheap because they have not been performing well and those that can perform like the oil marketing companies are being used like a cash cow by the government to fill up its own coffers. Consequently there is a limit to how much stock price movement there can be because those are not particularly friendly for the minority shareholders.
So for the rest of the sectors, let us say autos; there has been a very sharp rally already. Most of the consumer stocks are not necessarily cheap at all. In fact many of them have come back almost close to where they were before the fall happened. They were expensive then and they are even more expensive now. The private sector banks to some extent have not yet reached the level but for good reason the moratorium will not let you have a clear view on what the NPA situation is for at least another six months. So I think the market is pretty much pricing in all the positives without necessarily looking at the negative.
I am not sure if there is a sector which stands out. However, there could always be individual stocks. I would argue that besides pharma, which has been rallying, things like hospitals at some stage have to turn around because they are essential goods and whenever the Covid problem is over, you will start finding that the numbers start coming back there for sure and there is no ambiguity there. So therefore, if you find a hospital stock which is cheap, this may be a good time to buy. There may be other sectors like that but essentially there are no large market moving sectors which one can spot which is cheap.
What are you doing with some of these mid-sized banks that have been rather active of late?
They are actually moving up but reality is that for some of these banks, especially those where the unsecured book is fairly large, I would not be in a hurry to make a judgement on how good the quality of the assets are. I would argue that you should be prepared for some negative surprise. Whatever one is hearing anecdotally, of course, is that many of them are continuing to get money and not everybody has resorted to the moratorium. Many of the borrowers are actually paying back but that is simply the ones who can afford to pay back. So if you still have a large moratorium book and it is more and more likely that it is getting pruned down a little bit, it is because those who can pay back are paying back whereas those who cannot will now get into NPA. Therefore, the size still remains somewhat scary to me.
At this stage, if you have to be in the banks, I would still recommend that you look at those which have got large capital amounts, which will allow them to grow even if you assume there is a shock in the asset book.
Now to the extent that a Bandhan may have capital adequacy for now, you may want to look at that because obviously it will be cheap but on a slightly longer term basis, I would argue you are still better off with an ICICI Bank or an HDFC and if you really want to stretch it, even an SBI because while that may continue to have some of the shocks, the balance sheet and its positioning is such that it will be able to overcome most of them and the valuations are completely undemanding.
Do you think it is the right time to get into the broader markets as well? Do you think there is merit for that right now?
At this stage, trying to get into the market afresh is a little difficult given that we are nearing as much of the rally as possible. In fact it has already gone way beyond where it should be but given the momentum, I do not think it is going to stop immediately. You could be buying the broader market but as I argued just a while back, many of the broader market stocks have also gone up tremendously. Take an example like a Quess; it was Rs 200 hardly two weeks ago and it is now more than Rs 330. So with that kind of upside, do you really want to go in and rush in at this stage? That is just one example. I would be extremely cautious trying to bring in stocks, especially those which are less liquid.
If you really have to, then stay with the larger companies where you can at least trade in and trade out more easily. And at this stage be a little careful about buying illiquid stocks unless you are prepared to be a reasonably long-term investor. If you are looking at it from a trading perspective, then certainly no. From an investment perspective you can but I am sure you will get a better entry point sometime in the next few months.
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