What would be your advice for a better portfolio strategy — hedge or bets? If you bought into metal and banks from October to February, that trade has worked beautifully.
We do not buy metals. Only the banks have to take all the workload for us. In general, we are not going to change that strategy that we need two kinds of stocks. One stocks where we have high confidence and where the returns will be lower and one where we have a little less confidence but if it is right, returns will be higher. It is a mix and match of that. After 25 years, we will not find many people being able to continue their jobs because they can be blown out for taking a very aggressive stance one way or the other.
Let us split financials into two or three large buckets. You have got big-size corporate banks which include ICICI Bank, , even SBI; then you have got the old private sector banks which includes the likes of Federal Bank, Karur Vysya Bank and others. And then in the middle, there are the new banks – , AU Small Bank. What is your idea on all the three categories?
We do not have any of the old private sector banks because those banks have always presented value but have really never delivered and 25 years later we are not going to try one more time. These are regional banks which for whatever reasons were not nationalised.
We have first the big four and then we have one-two of these sort of turnaround banks. We do not have any PSU bank other than
. We say we are bullish on India but we do not have to be so bullish that we will believe every great thing that is supposed to happen because half the time, those great things do not happen while the market and the country does well.
That is why over the last seven-eight years, I would not buy pure infra plays and would not buy pure PSUs. Most probably, the infra projects will get delayed and privatisations will not happen but still the overall market will do well. Therefore we say we are very bullish but we do not have to be extra bullish.
In light of that do you think it is going to be sort of an average year in terms of lower double digits returns or do you expect something better than that? Given what you just described, it makes sense to perhaps temper those expectations somewhat?
If you really think that we are going to get mid-teen that is 15-16% returns, that is super bullish and I am in that camp. If you believe that the returns will be 12-15-18%, that is good to put as much money as you can and if you get higher returns, we are not going to refuse it. We are not going to sell stocks and say sorry our Budget for this year was only 14-15%. But 14-15% these days is a great return considering what you get in alternative assets and what you get in other countries.
The only thing is right now we have already made 10% in February. I will not count that. I would think that 15% is the average expected return because that has been the historical return based on GDP, nominal terms. The private sector is taking share from others and therefore the corporate sector earnings will grow X and by selection I can get 15-16% return to say that this year it should be 25% or something, there should be some extra logic for why this year is special.
Those things can happen if everything works smoothly. For example, if Air India and BPCL are sold, we will get more money from foreign allocators. But in the general context, 15% return is great and any time you make more, it would mean you will make less in the following year. You are not going to have 30% per annum return for the market.
