INSUBCONTINENT EXCLUSIVE:
How are you analyzing the market? You have been in the market long enough, managing your portfolio as well as client portfolios and have
witnessed a lot of cycles
Where exactly are we right now as far as the market cycle goes? Surely we have been hit by the pandemic and there was a sudden crash in the
But where do we stand right now?There are three types of cycles which an investor has to deal with
One is the economic cycle, one is the market cycle and one is the business cycle, which is for individual companies and sectors
In the economic cycle, I think there will be a lot of disruption happening at least for the next two quarters; we will know what happens
with the coronavirus issue
If we are able to maintain what we are doing right now, I think we should be okay
Again there is a chance of a second wave and we do not know that yet
So the economic cycle I think will face a tough challenge.
There is something called the market cycle
So what has happened is despite a stoppage of the economy or a slowdown, you are seeing markets bounce back more than 20% from the lows and
the broader market bounce back more than that; individual stocks are up
I get questions daily about why this is happening
The economy is almost closed then why stocks are going up
So that is the market cycle for you
It could be fueled by liquidity
There could be some belief that we will come out of this issue with much less damage than a lot of other countries
There could be capital flows to our country
So the market is pricing that in or it could be just plain liquidity flowing through
So we see that a weak economic cycle is there and that will result in a lot of business cycles also becoming weak.
How are you advising your
clients to approach this cycle or what is your own activity? Have you raised cash levels lately or were you caught equally like many others
on the Street? Are you waiting it out or have you started buying high quality stocks that are available at the lower level and at better
valuations? How are you approaching things?I am an investor who always has cash
So I had 35% crash in the portfolio even before this crash happened and obviously the rest of the portfolio also suffered
But I was able to deploy some cash when markets went down suddenly; a lot of which I have already taken out
Now as individual stocks went up 30-40%, it is prudent to take some profits off the table and that is going to be my strategy for the next
one year at least as we are going to have these challenging times
We might have these run ups which we should take advantage of by booking profits
So that is going to be my strategy
I think I will have 20-30% cash in my portfolio.
There is also an opinion on the Street among professional investors and HNI investors that
the market and economy are completely delinked right now
Market has rebound 20% from lows whereas the uncertainty on the economy front has only worsened
So the market actually deserves to trade much lower and perhaps retest the March lows
What are your thoughts on this point?As I said in my opening statement, we are having an economic cycle and market cycle working different
Economic cycle is going down whereas the market cycle is going up
That could be because of liquidity
But it is very difficult to gauge what is going to happen in the next three to six months
Since the picture is not clear on the coronavirus, that is the single most damaging issue which we are facing right now and we still do not
have the data on it to be able to guess if we will come out of it in one quarter or two quarters
But if the situation does not deteriorate much for India, I think gains we made last month may hold
But if this elongates for maybe a year or so, then I am sure that we will retest those lows
So as of now, you have to have an open mind as things can go either way
Just be positioned enough
You should be able to have cash in the portfolio is what I think and moreover our approach is basically to be stock specific
So we look at individual sectors and take calls accordingly.
Where do you stand on this opinion of value investing versus momentum
investing? This argument keeps cropping up; in this kind of market, what style of investing works better?We have seen 2000; 2018-19 is where
the momentum of investing or basically buying expensive stocks at any valuations kind of theory worked out and value investors actually
I think now is a good time where I think value investing might do better; our kind of investing to be honest
We clearly struggled in the last two years because we are very focused on valuations and a lot of these good companies obviously were out of
Luckily for us, a lot of them have corrected a lot
Some of them are still expensive; not in our valuation zone
But if these quality companies also correct and come in the valuation zone, we will not be hesitant to buy these
For us, value is most important and that saves us also at times
Really large NBFCs are correcting from 10x and that can also be brutal and you still do not have conviction to buy even at 4x move is what
So there are still pockets of very high valuations in the market
We are going to stay away from them but we are not averse to largecaps and we have some largecaps in our portfolio where we see valuations
But at the same time, there is an argument that when things turn, the largecaps are the ones which will outperform initially and then maybe
the smallcaps and midcaps
I am not sure of that theory
At least the last two weeks are showing me that the broader market is doing better than the largecaps and the fact is in the largecaps, you
still cannot have conviction because if things turn worse, they may fall much more than the stocks in the broader universe which are at very
So they might also correct but they might not correct as much as some of these large caps.
Talk to us about potential winners of this cycle
What are the kind of themes, sectors if not stocks which you are betting on?Yes so if you guys remember from the December interview, telecom
is one sector which we have really liked since middle of last year and that continues
We see a very long-term trend in this sector and that has been corroborated yesterday as Facebook invested in Jio
So that is one sector which we think will do well and it can be a sector to own for many-many years
Apart from that we like cement
About last month, we bought a lot of metals because a lot of stocks were at peak pessimism
Some of the stocks were available below their cash value; some of the good companies, lowest cost producers in their field
Sometimes in a month, if you get a 50% return, we are ready to take some profits off the table
Pharma and chemical will continue to do well and maybe I can talk a bit on sectors to avoid, which I think is NBFCs; they will struggle for
some time except a couple
Airlines and hospitality are the sectors where there could be long-term disruption; so these are the sectors we will avoid.
This article
first appeared/also appeared in
https://economictimes.indiatimes.com/markets/stocks/news/telecom-cement-pharma-top-sectoral-bets-in-this-market-jiten-parmar/articleshow/753
