What do you make of the markets, the range-bound move that we are in?
You are being very charitable in saying that the market is range-bound because I think it is falling quite a bit and generally. If the US market settles down, that is if it stops reacting to any bad news – on a stock, on the inflation front or a comment from the Federal Reserve – then one can be bullish. I do not think we can be bullish on India unless the market stabilises.
I was chatting with Chris Wood yesterday and he said he is only going to increase India weightage if the Nifty falls to 14000-14050. He said we have not fallen much and we are fairly resilient. Do you see another 2,000 points selling from these levels alone?
That means around 10% ?
As fund managers we are supposed to say that 10% fall can happen anytime and mostly without any reason. If it is the best of times or if it is the worst of times, when it can fall another 10%. So, there is nothing much in that. But right now, the momentum would carry it for a few more percent for sure.
Also Read: Why one needs to be flexible in a changing market
Let us look at it differently. Either the world and maybe a little bit India has to fall or time has to pass and then we negotiate two or three things. First is we negotiate what happens when actually there is quantitative tightening and that is number one.
Second is we see a little bit of the fact that the market is not reacting to every news and that is volatility of the US and maybe the Indian market going up and down 2% every day. A simpler thing for the Indian public to see is that every day we cannot handle a Rs 2,500 crore selling by FIIs. You cannot just handle it. Therefore it will always be under pressure till it goes down a little bit or becomes much less because one day it will be positive.
My guess is that these things will take five-six months to stabilise. In these five-six months, one can either not add new money or know that we are adding it for a three-year view or buy a particular stock or mostly not do anything for a few days or weeks. It does not matter. There is no ego in saying that I bought it at the bottom. I have seen this ego being presented again and again on twitter that we bought these stocks in March of 2020. It was the height of foolishness to have done it but it worked out.
Are there opportunities like in odd ITC which you have picked up? ITC did not move at all and then look what has happened to ITC ? Is the market throwing up those opportunities ?
The thing is we are also not able to control ourselves and even though I keep saying I am bearish, even yesterday, we added to HDFC Bank. Once in a while you feel like buying but when we say we are negative, that does not mean everybody freezes. It means one is cautious, not excited. Broadly, there is correction in some of the stocks.
These stocks will fall another 20-30%. The way I am looking at it – at least from my long short fund – is I want to short stocks where if the market turns, they are not going to blow out of this thing but that may be lost a little but most probably they will fall another 20%.
These according to me are stocks that have been massively rerated because of maybe easy money or a feeling that these stocks deserve to be 100 PE and 70 PE that they were trading at 30 PEs in the past and they are more steady.
One can make money more steadily by being out or shorting them but on the other hand, we have bought a few new stocks in the last five-six months. ITC, we bought in January but broadly it is not that there are some great values that are out there, one will turn bullish when the market is a little bit stable and I think for the last 10, 12, 15% that we may have. If we had zero money, all these things would be great starting points but this is not that we are investing our first dollar now. So, there’s no need to get excited.
Besides HDFC Bank, what else or what are you tempted to buy?
No this is what we bought just on Thursday.
What else are you tempted to buy or at least keeping on your radar?
In the last two-three months we thought that we already have a lot of financials and tech is the most connected to the US and in some sense you could say that these valuations have fallen but then they used to trade at 20s and now they are trading at 25-30 kind of multiples; so we decided not to buy a little bit more of that also. That left consumer stocks for us which are the three themes.
In the consumer theme, there is one group which has got commodity as a big input and it is mostly these consumer durables, discretionary type companies where it is very easy to connect it to the world. In India, we have not got this recent information but in the US we have seen what happened to Target and Walmart and all these places. Nobody is buying consumer durables and the logic is the same worldwide, that the home improvement and all that happened in the last two years while we were sitting at home. Anyway commodity prices are up and consumer durables are most affected by commodity as an input.
Also, when the prices are high, it reduces the affordability a little bit, Then what is left is the consumer spending small amounts of money mostly because of pent-up demand or because he has been kept in a house close for two years and so he is going out to malls and QSRs and he is going to movies and hotels. In all these segments, there is less influence of the commodity hike and also it is a smaller spend. We have bought three-four of these in the last two or three months.
How would you essentially play the oil theme? Some of the oil stocks have done well, a company like Oil India, completely neglected, any interest in oil related players?
No, even though it hurts us but because very rarely do we buy commodities and even more rarely or actually less rarely do we buy PSUs and PSU commodities. That would mean we are starting our life from zero and whatever we say we are an outcome of what we have seen for 25 years and this is not a strategy that we can easily follow that would mean not flexibility, that would mean shamelessly chasing of the latest idea.
You had said at one point with respect to that it could do well but look at what is happening to the stock: What is the outlook for the long haul?
We did not buy it in the end, we said it is a good idea. In the end by the time the IPO came, it was May and the market was really bad then but fortunately I had decided that no more do I want anchor. If I want, I would buy it on the last day and I can sell it on the first day if it is so happens. But we never ended up buying it.
Right now the problem that happened with all these IPOs is that when they fall below the IPO price, basically they waste a year or two years of their life because everybody hates them; then there is an overhang of the anchor, then there is an overhang that by now anyway you have spent three months only, eight months later the government may again sell. In this case, private equity funds may sell and that is why I tell every promoter who comes, at least whoever asks me, to make sure that the price after the IPO is a little bit higher than the IPO price.
But in this case I really thought it was a good price in the sense that the government had been flexible in not holding on to their initial whatever they thought about the price but the market in that sense is quite bad obviously that is why it has not even done that. It will take time now, everything takes time when it goes below the IPO price.
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