How are you looking at the market now? What is the road ahead for PSU banks that witnessed their best week since October 2017? The index alone put on a solid 25% this week. Do you think we are likely to see this sort of a change in the texture of the market where a lot of leadership will now be seen in high beta pockets like real estate, metals, PSU banks vis-à-vis IT?
Yes, what we are seeing in this phase of the market is that a lot of laggards have come back to the fore. If we map the market from last March-April to around this 10-11 months’ time frame, a lot of sectors have probably changed. Also, sector churning is going on big time in the market. It started off with FMCG, IT, pharma, healthcare and then
, metals cyclical and global cyclical came to the fore.
Even the auto sector that was ailing for the past couple of years had a good time in the last three-four months. So more or less, what we are seeing right now is that a lot of PSU stocks and PSU banks that probably had underperformed for the last five to seven years have also started to come out with some decent numbers; some with the promise of a turnaround and some just as a play to counter the leader cycle.
This is a type of rally where even traders are invested. Some investors are interested in value stocks where the growth has already played its part. I think that is more or less playing out. But I will be a little cautious at this point even though the fundamentals and macros have improved, earnings have been terrific and the Budget has been a catalyst towards the market. All the stocks and the market breadth is improving and a lot of laggards are coming to the fore, which disturbs the complexion of the market a little bit.
What is your outlook when it comes to the auto space? We understand that there may be some tweaking in the PLI scheme for the auto and auto components sector. What are you pencilling in when it comes to the earnings from the rest of the auto basket?
Auto pack was down in the dumps for the last couple of years. However, in the last three-four months, with the festive season cheer to the pent-up demand coming back and the Covid-led demand of people wanting to own a personal vehicle; be it a two wheeler or a four wheeler or small car; I think all this has come back to the fore. Along with this, due to the rural India doing well, the tractor demand has been coming back.
Auto ancillary and auto component companies and even tyre stocks are seeing replacement demand. The OEM demand is coming back too. The sector seems to be in good shape right now. It is playing its role in terms of its cyclicality. Another very important part for the auto sector is that a lot of these companies created operating efficiencies and capital allocation plans. It was haywire for the last couple of years, but that has been sorted out. So it seems to be in the investors’ radar right now and some two-wheeler stocks as well as four wheelers will continue to do well for the next one and a half to two years.
A lot of stocks have come off from their 52-week lows. This includes the likes of Tata Motors, , M&M (which has gained about 247% from the 52-week low), Bajaj Finance and Tata Steel. Are you continuing to see this leadership and preference towards largecaps? Do you have any stock picks?
What we have generally identified for the past couple of years is that the market leaders exist across the marketcap spectrum. What I mean to say is, there are largecap market leaders. In the midcap segment, too, there are a lot of market leaders. Same with the smallcap space.
In a way, if you become marketcap agnostic and look at the market leaders in the sector or in a theme which you are confident about, you are bound to make very few mistakes. What we have seen during this Covid time is that the unorganised to organised migration has happened very fast and that is where a lot of these companies have gained market share.
Classic example would be somebody who had written off Bajaj Finance last March or April; similarly Bajaj Finserv. Another company is Maruti. Who would have thought that a lot of these companies would gain market share. So be it Asian Paints,
or anything in the building material space or even FMCG consumer space; this space has generally been silent over the past few weeks. But I think there are a lot of legs here to go up for a pure pure fundamental robust upside. Yes, there is leadership in terms of being marketcap agnostic but yes, there are a lot of opportunities in the largecap and in the midcap space where market leaders have not only gained market share but have shown operating efficiencies as well with cost cutting and good margin expansion and top line expansion as well.
