Excerpts from an interview:
While we thought that we were already set for the end of the year, we have managed to reach new highs throughout the week ending close to 13,700. Given the kind of fund flows we continue to receive it does not really look like there is any stopping in sight?
Well, that is right and there seems to be more money out there. It appears that even the domestic investors have not yet decided that they have had enough. It appears that market participants are waiting for any kind of correction to buy further. However, even if I use any parameter to measure the market, I cannot find a reason to be buying at this stage. The market is extremely overvalued and over stretched including the fact that it has actually had so much momentum that technically you should want to give up a bit before it carries on from here. But at this time the only advice one can give is that hold on to whatever you got and sit tight. You essentially just have to extend your time horizon and keep your fingers crossed.
One of the big themes that just continues to get stronger is IT. Accenture is giving a very strong growth guidance and is continuing to see strong numbers and outlook for FY21. This has led to a move across all the IT names especially after we heard that commentary coming in. What is the outlook you have for some of the IT giants?
Well there is no question that IT scenario today is better than what it perhaps was even a year ago. This has been largely because as TCS mentioned in the recent analyst interaction that due to Covid-19 situation the movement towards cloud has got accelerated. This is not something that is either industry specific or size specific as more or less all companies have to have a play on how they are going to be presenting themselves on cloud and this is something like ERP which is going to be a multi-year kind of cycle.
We also have to put in context of where we are, I mean IT in the previous cycle in 2000 and thereabouts used to grow at 25%-30% and after that we saw a large degree of de-rating simply because the growth rates had slowed down. When we are talking about an increase in the growth rate now we are still pretty much at near double digit.
If you are looking at investing in big IT companies you would want to necessarily go out and increase your exposure to them only depending on what else is available right now.
So the fact is that many of the other companies with far poorer balance sheets and corporate governance standards and perhaps not that better growth rates are trading significantly higher.
One could argue that you would still want to be in the frontline IT companies which have specific products that can benefit from going on to cloud which means many of the product based BFSI companies can actually do quite well. But many others which are going up for example those which have presence in travel, tourism, retail etc. are really a play on the kind of unlock that we are seeing around the world.
One area where we continue to see pressure has been financials. We have really not managed to see a pick up coming in from there. Nonetheless PSU banks definitely saw a lot of traction. But overall on the financials front there is still a lot to be desired?
Well yes, but I think that it is more of a pause as the market had first gone up in terms of financials and then some of the other sectors picked up. I think the rotation will bring it back to financials but we need to be a little careful and see how the moratorium now begins to start reflecting in the reports that come through in the next quarter.
So you would still want to be with the larger names which have a much bigger balance sheet and have a bigger likelihood of being able to absorb any rough edges that come through.
Most importantly the smaller companies also have started to actually move up among the banks and the NBFCs and that is telling you that all we are looking for is just a rotation.
After the initial uptick we have actually seen that PSU bank index is down about 3.5%. Even the private banks have seen a bit of a cool off coming in. But yes some of the smaller pockets and other themes such as real estate like DLF, Godrej, Oberoi have moved this week?
Well that’s right and I think what has happened is that basically with the foreign money coming in you are looking at deep cyclicals as the place to be. Real estate has been the one area where there has been very little movement. Most of the cities have excess inventory and with the affordability going up the prices have not moved upwards but have perhaps if at all moved downwards. In most cities there has been now lower construction and the housing finance rates are the lowest ever so the affordability has certainly gone up. So when you make money in the markets you go out and look at where else you can put in money and clearly real estate has been the one that has benefited a lot. I would also think that to some extent perhaps Covid-19 has helped because people who were staying at home suddenly realised that they want a bigger flat or a bigger room and therefore perhaps that may also have helped to increase the demand.
Also many of the cities for example Mumbai have actually reduced taxes quite a bit so I think all things have kind of combined to put an impetus behind this. I would argue that this is one space that has still some legs to move assuming that we do not have any major negative coming through in the form of either a sharp interest rate hike or a withdrawal of money from the system for whatever reason.
