What is your outlook when it comes to that draft scrappage policy?
I looked at it cursorily. I saw that the large part of measures are in line with expectation and on the positive side, If all these measures get implemented, there was an expectation that it will be positive for the automobile industry. We will see the demand for vehicles going up because a lot of older vehicles are likely to go out.
Would you be tempted to buy this fall or would you say wait it out?
I wish there were simple answers to simple questions. We all talk of greed and fear and taking a contrarian approach and that one should invest when the market is going down and not when it is going up. On the other hand, we also say that there is no point in trying to catch a falling knife. We are up almost 100% from the lows of March last year. In between, valuations have also moved to the upper end of the band. FII inflows have subsided in the last 20-25 days. We have had n days of positive inflows and days of outflows. Oil price has gone up significantly and is close to $70. That is not a very positive thing for India.
So putting all these things together, it is quite likely that February 15 was the last time when Nifty had peaked out on a closing level of around 15,300. It has been almost a month that we have not crossed the earlier peak and have been in a range-bound movement, in fact in a correction. It seems we could be in an extended period of correction to consolidation and one might as well wait it out. If one is looking at a shorter term approach in the market, it does not matter even if one gets in at a higher level. A shorter-term approach is more of a trading approach and the stop-loss oriented approach and one would like to be reasonably certain. So to answer your question, yes one can wait it out and see how things are shaping up.
Have already applied for any of these IPOs in the works?
I am tracking all these IPOs and have applied in my personal capacity as well and taking a look at them. What is happening is that some of these IPOs are offering an exposure not necessarily the first time but at the beginning of the sunrise phase of the sector. When I say this, I specifically refer to a broader digital ecommerce online work from home related spaces. So Nazara fits into that. Easemytrip came in a while ago and that broadly fits into that.
If I talk about Nazara specifically, the financials do not look great but the market is obviously looking at a)the sectoral exposure; b) limited opportunities available in the listed universe in these spaces. The earlier IPOs have done very well but their market cap size has not expanded enough for institutional participation to come in.
That is where we will continue to see market interest. Already we are seeing good performance from the earlier listings. Of course, with the market turning a little bit cautious, it does not take time for sentiments to change also. But having said that, in the specialty chemical space, two IPOs are coming in from Anupam Rasayan and Laxmi Organic. That is where the market is looking at and it is quite likely that based on the earlier success of the other IPOs, we can continue to see successes in the upcoming IPOs also.
There has been a huge subscription but I do not think that a large part of liquidity going into subscription of these IPOs is having an impact on the current secondary market. For an individual investor or even for an institutional investor, whatever money he allocates to these IPOs is probably a very little part of its existing portfolio, it could be as less as 5% or even lesser,
On the whole, it looks like a lot of money has gone into these IPOs but from an individual or an institutional perspective, it is less than 5% of their portfolio. For the secondary market correction, look at other factors like lack of followup buying by FIIs, oil price going up as a result or macro factors slightly changing the sentiment and lack of triggers. Till February 15, we had the result season and it was a positive surprise for the December quarter.
It seems to be a bit of a catch-22 when it comes to sectors like hospitality, travel, consumption or even the multiplex stocks. While the vaccine is providing that silver lining or ray of hope, on the other hand, there is the spike in cases which will significantly reduce demand. Is this a sector you would steer clear from until we have very decisive clarity?
Yes. The sectors that I am currently staying away from include hospitality, hotels, travel, multiplexes and things like that. And it is not only because of the second wave or Corona. Earlier, while travel and hotels seemed to be picking up, multiplexes still had not picked up. There were alternative entertainment options available to people.
The consciousness about the Corona not having gone away was always there. That is where we see challenges and whatever little pick up was happening may get knocked down again going forward.
I think the IT space as a whole including the whole digital, ecommerce and Fintech space could outperform going forward. Within broader consumption, the FMCG space as a whole can perform. It has not performed for almost seven, eight months. The numbers have been there, the growth has been coming there continuously but margins could come under pressure because of commodity prices going up. But these are the spaces where we can see outperformance as against the Covid-hit spaces.
What about the MNC stocks? Are you seeing some decisive trend here? Is there any potential to buy on dips?
MNCs within the FMCG space could show outperformance as there has been underperformance for the last seven, eight months or so. FMCG is a low beta defensive sector and if it participates in a rising market like a high beta, I would be worried that in a falling market, it will fall like a high beta. but now that we are having a consolidation in the market, there could be outperformance going ahead. So for the MNCs in FMCG space, yes, I am positive. But for MNCs in pharma, engineering or chemical space, I do not have a view.
Do you think the weakness in BPCL is a little overdone?
Two things; a) there is an overall correction in the market and that has brought down everything with it. It has brought down those spaces or sectors or companies more which had been recent outperformers. The public sector space as a whole was quite an outperformer in the last two, three months and more specifically in the last one month. Within that, BPCL on disinvestment expectations, was a big outperformer.
b)While there is a broad expectation that privatisation or disinvestment will happen, at some point of time the market would like to see some concrete action. Although we are seeing actions being taken like the Numaligarh Refinery being sold, that action has to be approved in an AGM or EGM, post which there is the expectation of another interim dividend and things like that.
