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At the moment there clearly seems to be no worries about a potential second lockdown. We have seen a pretty stellar move in this truncated week. What are you watching out for by way of momentum for the markets? What could be potential triggers?
Some of the more advanced economies have also gone through the second phase of the Covid and while it does have an impact on a very near term basis, I do not think we need to exaggerate its implications and probably it is the part of the process of evolution of the virus.
So there will be some impact on business performance and on the economy in the short term over the next month or so. But beyond that, we will probably surpass the peak of the second wave as well. More importantly what everyone is looking forward to is probably a more normalised economy towards the later part of this year as we increase vaccinations.
As far as markets are concerned, my view continues to be that we remain in a very strong bull market. We are still in the early phase of a bull market. Some of the early gains in this bull markets have already been made or the low hanging fruits have been captured, Now the valuations which were extremely cheap a year back, have normalised. From here on, returns in markets will be driven by earnings growth and sector specific moves.
What is the right way of looking at this market? Is it getting complacent?
We are in a bull market and this bull market is climbing walls of worries. Bull markets tend to have volatility and their share of pullbacks and corrections. This is one such correction we have witnessed for the last few weeks. But the broader hypothesis of the bull market still remains pretty strong and resilient, which is that India’s growth is going to accelerate next year and also probably we will see one of the sharpest earnings growth in a very long period of time.
And the expectation is we will see significant resurgence in demand across industrial and consumer stocks. The low hanging fruits in the bull market had taken off and so the extremely cheap valuations that existed in the early part of this bull markets have been normalised. So from here on returns in equities will be more driven by growth rather than valuation catch up. So that being the case I think the bull market should sustain.
Do you track ?
Yes we had a look at it very closely before the IPO. It is early days. It just got listed today, so let us see how it plays out. The space is pretty exciting and probably India will become one of the large gaming markets globally. This space is very exciting. They have a promising bouquet of products and games in their portfolio but it is early days for us from our perspective because it just got listed.
Will Nazara be like InfoEdge? The reason why I am asking this is because Nazara has started picking up stakes in some smaller gaming companies. Is Nazara trying to do that, replicate the same model in the gaming business?
Since we have discussed InfoEdge and Naukri for a long period of time I must caution you while Naukri has built an extremely successful model around acquisitions, they have had over 50% failure in the acquisitions that they have made. Out of the balance 50%, some of them have turned out to be extremely successful. So this whole acquisition or M&A driven business model has its own flip side in terms of failures which are given and which will happen.
So as far as Nazara is concerned, they have just got listed. We have a limited history of them. I think we need to watch it for some time in terms of their track record and performance before we take a longer term call. But I must say that while acquisition sounds very interesting to start with, they always have the flip side where a lot of these acquisitions actually do not work.
Where do you stand when it comes to the capital goods sector? Do you think L&T would be one of the keepers within this space or would you venture out and delve into smaller names?
Larsen & Toubro is the bellwether when it comes to capital goods sector in India because they are very well diversified across all segments in India — be it infrastructure, be it engineering, be it oil and gas or the manufacturing sector. They have international diversification also. Given the size and scale of L&T and more importantly with their capabilities cutting across so many industries including defence, it is a perfect play in revival of India’s investment cycle or revival of capex in the private as well as the public sector.
We are in the early stages of recovery of the investment cycle. As the cycle gains slightly more prominence, I am sure there are many more companies across the sector which will also be significant beneficiaries of the cycles — right from Thermax to Bharat Forge when it comes to defence or infra and some of the names like KEC and Kalpataru as well. As the investment cycle gathers momentum, there are a lot more very good companies which will benefit from the cycle.
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