Currently what are you advising investors -- buy into these markets right now or you would believe that there will be lower levels in the next two or three months?
No, two days back we put up an aggressive buy call for our investors where our estimate is that the indices will not go below 5300 and actually indices do not tell you the right picture. If you go down and look at the broader market, the market actually if you sit down and correlate some of the prices, the prices of most of the stocks are actually at 4600-4800 levels. Good quality mid-cap companies are trading below 300-crore market cap and even if you were to take EVs trading below 700-800 crore, EVs with top lines are 1000 crore or even more at times. So we are quite convinced that 5300 will not be broken, and negatives are in the price. I think it is worth taking a contra call at this point of time.
I am not a technician. I do not know how long it is going to take to build a base at this current level or what might happen, but if it does trade below 5300, I do not think it will trade for more than a day or two, barring some event risk, which none of us can game. Just like the tsunami in Japan or any other event risk, which shakes up the market, which includes a major Euro zone crisis, which also is already in the prices and is built in there. So our call in Indian equity is that from now on, you will see outperformance in India. India has been the worst performing market YTD after Egypt . So we are much worse off than Japan, Italy , Spain , and those kinds of markets. I do not see any reason why we should be trading at these levels. We are down about 12 or 13% YTD, and even on a rolling Rs 50 basis, we are one of the worst performing markets in the world. Whereas we still can count on 7-8% growth, but I cannot game the next two weeks, three weeks or one month. Therefore, my call is that if you get 5300 or even at the current levels, you should be buying.
So what would you buy at current levels?
I would get into a contrarian play. I would in fact want to get out of the overcrowded trade at this point of time. The overcrowded trade lies in the defensives that is in the pharmaceutical, FMCG and technology, that's the trade I am most worried about. I would want to get out of that trade at this point of time or even those investments to some extent and do a contrarian trade. My sense is, of course, with conflict of interest that Reliance Industries should lead the rally now. Most of the negatives are in the stock, whether it is D6 production, etc., etc., that's one stock, which will lead the market up and similarly other contra plays, which have underperformed for the last year-and-a-half or so, would now lead the cycle. And that includes interest rate sensitives because they are pricing in the worst at this point of time.
What about the rate sensitives, not real estate but banking and autos?
The negativity in banking is overdone. Most of the banks and particularly banks like SBI have taken major hits and cleaned up their balance sheets. Their portfolios have been marked down, assets have been restructured. A lot of NPA provisioning has happened. You are already building in the worst because of the interest rate environment and tight liquidity conditions and I do not see things getting worse from the current levels. RBI has already factored in the price hike in diesel and petrol, which RBI was very clear in its policy this time. So I do not see RBI taking that hawkish a stand going ahead. Yeah, it may raise 25 basis points, I do not think anything more than that even if it has to. So, therefore, it is a good time to get into some of the banking stocks also.
In the last 6-9 months, any of the recent listings that have caught your eye?
I do not think so. I really have not found anything exciting to really look at in the new listing space. And more so because of the fact that a lot of other secondary market existed in listed companies are trading way below what some of the listed peers are offering you. One is not too sure as to how the listing game is going to play out in these stocks. And if you look at the experience, there was a data table in some of the newspapers yesterday, 70-80% of newly-listed stocks are trading below their listing price. So why take that risk because in most cases, their issues are aggressively marketed by merchant bankers and all the intermediary as well as the company. Pricing is mostly priced to perfection, nothing much left on the table. So why really get into that? I do not really prefer that space. I would prefer looking at a company which has an existing track record, and information is publicly available. Historically why do we go and buy that in the industry until and unless something unique or novelty proposition, which is not available in the secondary market comes up for listing and we want to evaluate it.
What would you say about the auto basket? Is the fizz out?
They need to consolidate and correct for a little while more. You have seen outperformance in them for quite some time over the last year or so or maybe more than that. They continue to be good medium to long-term plays to invest into, but in the next month or 2-3 months, you will see underperformance or you will see maximum of neutral performance in the stocks. Most of the uptick is priced in them in terms of demand, etc., etc. There could be huge re-rating in the sector and the stocks if commodity prices really come off and sustain at much lower levels compared to what they are in this level, then of course the input costs come down, but that's what is the big 'if' right now for the whole sector and for a lot of other sectors because the input costs and particularly commodity costs are really hurting them in terms of margins. So that's what is going to be seen.
So you would not be a buyer into auto space at all or would you wait for further declines?
I would wait for further declines. The stocks are already pricing in most of the positives, and I will get better entry points. As a trade, you might want to trade the trend, which is of course relatively positive right now compared to the rest of the market. But as an investor, I would definitely look for better prices to enter.
Would you take a longer-term view on sugar stocks and, therefore, buy into some of the leaders, maybe a Balrampur, which has zero debt or would you still stay out because there could be further lower levels?
No, I am positive on sugar. I would buy into it and obviously would like to disclose that I have positions in this sector in various stocks. I am positive on it and particularly at the current levels, some of the stocks are very attractive. Not only replacement value, in fact some of the stocks are trading below their book value and some even below their cash values. So I do not see any reason why the stock should be trading in there. Yes, sentiments are down because it is heavily regulated industry, that's the only thing that goes against it. The government does not take any decision on whether decontrol will happen, not happen. There is a flip-flop there or what kind of policy framework is in store for them over the longer term. Of course sugar and more commodities, which are controlled by the government, are politically very sensitive. It is not easy for the government to take these decisions keeping the backdrop of what has been happening politically in the country over the last few months. So yes, the sector would be under a cover for a while, but I would want to take a contrarian bet on it.
A pocket that has taken quite a bit of cut is construction/infrastructure. Are all negatives in the price and would you buy or would you stay away? If you would buy, what is that you would buy?
That's a sore point with me because I have been long that sector for quite some time and it really hurts, and it really pains to see that your investments are grossly underperforming. Forget underperforming, they are depreciating by the day. I believe in the investment still, and they will make money over the medium to long term. I would remain invested. Therefore, my biased view obviously would be to recommend investors to look at select stocks because there is potential in them. Unfortunately a mix of interest rates, a policy lock jam and policy paralysis where contracts were not being awarded or go slow, input costs, execution issues. A combination of a lot of these issues have contributed to the negativity in the sector. And genuinely so, but I continue to remain optimistic and this might just be the contrarian sector that may do better than the rest of the market over the next one year.
Source : ET