Let us talk about financials. On one hand we have got big fundraising plans that are continuing to be announced from the likes of an ICICI. Some of the more speculative names have also seen a very strong move over this series.
Yes, I agree and I think to the extent that it keeps happening, it is actually better news than what most people are worried about in terms of hot money flowing into the market and going out. Whenever a company announces plans to raise money, whether it is through a qualified placement or a preferential allotment, you know that that money is coming in for the long term. So every time a company like ICICI or Reliance or anyone raises money and that money comes in and shares get allotted, you are certain that that money has come in for a long term. That is actually a fairly positive thing because right now the sense you are getting is a lot of what is happening in terms of valuations, the brutal up move we have seen, low interest rates, a lot of money printing in overseas markets because of which this money is coming in.
Make no mistake, if you are a retail investor in this market, keep in mind that the brutal move that I am talking about is happening mostly because of institutions buying; mostly because FIIs are buying. They will be able to get out of this market and sell fairly quickly but if you are a retail investor, a mutual fund systematic investor, you will not be able to tweak your portfolio on a daily basis. So you have two choices. Either you have a pool of money from which you invest a part of it into the market and then keep replenishing that pool before you commit more to the market. You make sure your pool has replenished and it always is 40% in equity and 60% in debt and that pool has to have a certain size.
I see a lot of retail investors going either 100% in equity or staying 100% in cash. I think both approaches are wrong. You have to have a balanced portfolio and keep replenishing as an investor. To answer your question, I hope more and more of these deals keep happening which gives you the confidence that more long term money is coming into these markets but the way this has happened is far too quickly and far too fast. So whenever reality catches up, I do expect a correction in the market.
Is there anything else that is standing out to you as a possible investment opportunity currently?
I think purely on account of where valuations were for the auto sector, that is one sector where you should look at deploying capital. Same goes for pharma and IT. Banking has fallen a lot but I still would be really wary of banking because nobody really knows how much NPAs come out and how badly these banks perform going forward in the next one year or 18 months. Interestingly, if you look at the earnings that have been reported so far for the previous year, most of the companies have now reported earnings from the Nifty. I have results for 14 in front of me and interestingly, auto and pharma are the only two sectors which have reported bad earnings. Other than that, all other sectors have reported very good earnings. In fact, overall there has been a 15% jump in earnings.
Again, these are year-end figures. So the quarter numbers will be really crucial because I do expect this quarter to be pretty bad as everybody is expecting. But having said that, Hero MotorCorp, the top five pharma companies -- Sun Pharma, Cipla, Lupin -- these are the companies where you should be investing that incremental capital that I was talking about. I would stay away from financial stocks. I do have Federal Bank in my portfolio which I have purchased at a fairly high price and we have added a lot more of that about a month, month and a half back. It has shot up from there. So our average still looks nice. I do expect this stock to fall. I am not selling it. In fact, at every fall, we are going to put that incremental money into stocks like these but broadly, financial services is not the best place to be right now.
What is the view when it comes to real estate?
We have Absolutely nothing in real estate. In fact, there is a situation where builders do not want to reduce prices, which they will have to. They are sitting on a huge pile of debt. There are a few companies which have not but I do not see any demand pick up in real estate in any foreseeable future. So I do not understand this rally really.
Next play is also clearly gold. Would you look at names like Muthoot or perhaps others that you feel could rally on the back of that?
For both Muthoot and Manappuram, it is a beautiful market. They literally have no competition in the space, which is gold loan. The way gold prices have appreciated, they have a very safe margin blanket with which they can grow. The question really is the cost at which they grow. It is a very risky business to run at this time because the big problem for financial services is potential default which they are looking at going forward. So to that extent there could be some NPAs there.
But having said that, from a credit perspective, they are very-very safe companies. The way these stocks have run up, just like the rest of the market, I do not think it is the best time to enter into these stocks. These are businesses which you would really love to have in your portfolio.
Somebody needs to talk beyond stocks. We have the IMF saying there could be 4.5% contraction in GDP. There is a global pandemic going on. We are looking at a potential war with China. I do agree liquidity can make markets do crazy things but would you want to be a participant in those crazy moves. As I said, investors should either systemically invest a portion in stocks or just sit out. Even if you make 8% to 10%; probably these days you are not making that. But even if you make 7% to 8%, you would probably be richer in a year, year and a half from now then. So do not get carried away with this mad liquidity rush and appreciation in stock prices and just be sensible. That is what we are doing. That is what I am advising and that is what I am doing for my own portfolio too.
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June 26, 2020 at 12:10PM
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Expect markets to correct when fundraising reality plays catch up: Rajat Sharma - Economic Times
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