Just wondering what you’re doing with this market? It changes every hour!
Yes. It is very hard for those who want to play it in the short term. There is no way to predict what will happen. I don’t know who tries to do it and how they do it; it’s impossible. It’s the confluence of reports and the markets aren’t exactly cheap. So when this type of activity occurs in terms of information flow and the markets are quite expensive, huge volatility occurs.
This is not just happening in India, it is happening all over the world and this volatility will last for some time to come. It’s only good for investors; whenever there is a sell-off, one can continue to buy the stocks and sectors that one likes, which could be reopening business stocks, some auto stocks, capital goods, infrastructure. This is the area that I focus on and whenever there is a deep correction, this will be the type of actions that will be sought to be added.
What could cause this deep correction because some would say all bad news is out in the open; bond yields have risen, crude has risen, geopolitical tensions are at their peak?
Even now, all balance sheets of all central banks are still expanding and while globally there have been a lot of corrections, India has barely corrected. Now, when those balance sheets start to shrink, money will flow out of risky assets. Which risky assets will be impacted? It will be stocks, real estate and cryptocurrencies to a very large extent. in the USA etc.
A sell-off has taken place, but many of these low-profit businesses are only 90-95% off the top. I think the texture of the market this year will be very different and the focus will be on earnings with valuations and those are the kind of companies that will continue to do well because in a market like India, because of the domestic flows, stocks are still good and so good companies with decent valuation comfort could still do well.
Despite all the cylinders firing in the right direction, less than two days outperforming Reliance underperformed? Why is this so?
The main reason for this is that in my opinion the direction jumps from one to the other and so in 2020 the focus was all on the Jio platforms and at that time there isn’t had no plan for these investments in green energy. Then all of a sudden they announced huge investments in green energy and oil and chemicals splits as well. But the sale of this business also failed.
Many things did not happen while some things did. I think the stock is doing reasonably stable. They also announced a large number of small acquisitions. I don’t know what all of this does to the company’s overall debt-free status, because until last year they weren’t generating positive cash flow.
That’s why many investors don’t buy this stock and that’s why it moves whenever it tends to beat expectations etc. This will be the nature of Reliance. Green hydrogen is not really a viable thing. A huge amount of subsidies will have to be given at this stage to make it viable. It’s a very, very long story.
Can Vedanta be the dark horse because its problem is not commercial. The problem is what was the promoter doing with the capital allocation?
The first is the capital allocation and the second is the overall management view. To that extent, management’s perspective hasn’t changed that much. Much of how the stock has moved when they offered to do a 2020 buyout at Rs 90 dollars to Rs 370 now is due to the huge rally in the whole cycle of the commodities they operate in .
Even now, this crude spike also relates to their oil business – the Cairn business. It will do extraordinarily well because of it. The perception that management is not minority shareholder friendly will persist due to various events in the past. This is the reason why it is trading at a discount to what it should ideally be trading.
Secondly, after the huge move of the last two years, this year we have to be slightly wary of the whole commodity basket due to the fact that once the tightening cycle begins, historically, commodities enter in a range of chilling and commodity stocks largely follow commodity prices, not earnings.
What do you think of this recent Tata Motors upgrade from JP Morgan. They put a price target of around Rs 630 on Tata Motors and they say it can achieve its net zero debt target by FY24! Should you buy again or add positions?
I think the management of Tata Motors themselves need to approach the analyst who wrote this report to find out how they are so optimistic about debt reduction and how they can achieve zero debt, because until the last quarter the company was not generating a lot of free cash flow. They are still in an investment cycle and there are still profitability issues. They are always in deficit. So I just don’t know how these reports come out but I believe Tata Motors is a car stock unlike many others where there is still potential. Their positives are greatly considered and the potential negatives are not.
There is some debate over whether PSU banks will recover or private banks will outperform. Neither seem to work at all?
The main reason is that financials have become a favorite of traders and short-term investors because it was the only sector that really performed decently in January and many people jumped into stocks in this sector. and in particular the leveraged M&O segment.
On the other hand, these sectors are the most affected and this is what is happening. I think PSU banks pose greater risk, especially balance sheet risk given the type of securities portfolio they hold. Right now due to the RBI comments and all the bond yields they have stabilized but they will only go up and many of these banks will take a big hit. They can take it on their balance sheet because of that.
Simply playing the game of pure valuation makes no sense. I would always prefer large, well-established private sector banks private on corrections because banks with large CASA and adequate credit growth and capital adequacy will be the ones that do well in the longer term.
One thing we notice in the market is that there is no rush to buy the dips. Last year, the texture was a bit FOMO and people wanted to take stocks back. At present, this does not appear to be happening. Are there any long-term bets that could be taken now?
On the contrary, if you see the way the market rebounded on Tuesday, there is still FOMO in the market and to that extent many retail investors and traders simply want to buy at any low. So I don’t agree with that statement that it’s not there. I believe for this year more value with growth will do well and I would like to avoid commodities, highly rated consumer games, etc. as well as some financial ones this year.
On the other side, select private sector banks, capital goods companies, infrastructure-related companies and the whole business of reopening hotels, multiplexes, etc., all should do very well. exit.