On Tata Consumer
The reorganisation was the trigger for the stock to move up and that is why we saw the stock move up from Rs 250-300 to the current levels of Rs 600 plus. The reorganisation, higher growth potential led to that because the earlier business, which was just tea, had very limited scope of growth. But the near term challenge for Tata Consumer is that predominantly the businesses remain tea related. We could see some margin pressures come through but the longer term prospects have improved.
That is the balance which investors have to make. Thanks to the runup, the stock is trading at valuations of 50 plus one year forward now, which is not cheap. That is the only challenge. Serious investors can go for the stock, but on corrections. The current valuations leave little scope of appreciation in the near term.
On market strategies
Market requires a lot of patience and one needs a different mindset to be able to get through different phases. If you can take 10-20% fall for a rise which would eventually happen and which will be much greater than the fall, you could play that. But at some point of time, the risk-off to the market becomes greater in terms of frenzied activity which has gripped the markets not only in India but globally. Look at what is happening in small stocks, crypto currencies, game stocks etc. That creates a scenario for a reasonable correction. If, hypothetically, we get a 10-15% market correction, then many of the stocks will fall 20-30% also.
When valuations become so high that they reach levels at which they have corrected in the past, it makes sense to have some cash because only if you have cash you can buy when the market falls. If you have no cash, then you can really do nothing. And if you have and especially if you have made so much money, if you have made 40-50% or more while the average market returns over the last 25 years has been 13-14%, then you need to rethink whether this can go on or if some profits should be taken off and one should wait for better opportunities with cash in hand. The market always gives opportunities.
