How are you mapping the market mood? Would you say that half of the damage is already done with regards to the spike that one is seeing in Covid and the local lockdowns?
It is hard to say the impact that Covid will have on the markets because this market has for most part defied all negative news in terms of Covid and lockdown that we have seen for the last one year. The truth is that the market has gone up primarily on account of two reasons. One is of course the low interest rates prevailing the world over and second is non-stop printing of money. About 40% more money in circulation today than we had in January of 2020.
Global debt has risen and while so much money is in circulation, inflation has not gone up. The reason is this money is being printed to keep people safe, people who are out of job, people who do not have earning potential right now. But when the world opens up and people start earning money, there will be a very sharp rise in inflation because people will be earning again and at that time, interest rates will be revised upwards.
At some point, this has to give way and at some point markets have to fall. Now the rising Covid numbers is bad news. In fact, a lot more other than that is looking very bad but there is so much more money in circulation, it does create a bubble in stock prices. Since Nifty was at 11,000-12,000 level, I have said that we are in a bubble zone and we are very expensive. If you want to trade the market, go ahead and trade but overall there is absolutely nothing in this market which is looking cheap that we can buy and hold for a long term.
Would you be tempted to buy into any of the pharma names because pharma has been resilient once again?
Yes. In my portfolio, I have
, and Cipla. I have said this before also that when it comes to pharma, unless you understand the sector very well and unless you are from a background where you understand chemicals and formulations very well, segregate your investments and allocate it equally between the top three-four players.
I feel that pharma will be needed for the next few years and right now also a lot of these large cap pharmas are still trading 50% below their life highs — be it Sun Pharma, Lupin or Cipla. Sun may be one exception but Lupin and Cipla are trading far below where they have traded three-four years back. So they have a growing market. They will grow for a long time to come. I still feel that that is one safe pocket where you could keep your investments.
The fresh money that keeps going into equity, should should flow into pharma and IT even at these levels. Other than these sectors, I am not really exposed to equities all that much. So for most parts, we have sold everything we had in financials, I may look like a fool for the next six or eight months because there is massive liquidity right now. Who knows which sector goes up? It is hard to put logic to how stock prices are going up and down. Certain sectors are looking extremely bad. Certain stocks which are market leaders for that sector are going up for reasons beyond my understanding.
What is your outlook when it comes to some of the other niche sectors? There is strong demand now for gold loans. Are you looking at any of these players within this space?
Both Manappuram and Muthoot have run up a lot in the last two years because until a year back, gold had run up quite sharply. They will be perceived to be very safe because the levels at which they got the loan on their books is actually far lower than where gold is trading right now.
Having said that, instead of looking at these companies at such overvalued levels again since they are NBFCs and there is a liquidity problem. When interest rates rise, which I feel will happen at some points towards the later half of this year or next year, as and when this Covid situation is behind us, more than betting on gold loan companies, I have allocated a lot of my money into gold. The levels at which gold is trading right now, it may not be a bad idea to put 20-25% of your money which you would otherwise put in fixed income, in gold.
Gold should do well for the next two-three years because I have actually looked at it. I have thought about this from many aspects and in many ways, I really do not see how stock prices could keep moving higher even if they belong to companies which are very protected and very well diversified. Gold loan companies are very safe but the valuations at which they are trading, it is just difficult for someone like me to buy at this level.
