Now that we are bang in the middle of a Covid second wave, do you think the market could see further pain?
It is quite impossible to say how this will play out and typically these are unpredictable events. Further lockdowns may take place or cases may come off and we may see easing of restrictions. All those scenarios are possible and so it is difficult to say at this point of time. All I can say is that three to six months down the line, this will be passé. We would have recovered and the economy would be back up and chugging again.
We have to bet on that at some point of time. We would have beaten this Covid-19 pandemic and we will get back a rhythm in terms of earnings and economic activity. At that point of time, stocks again will get back into rallying mode and I am still convinced that this is a small correction in a multi-year bull market.
We have already fallen about 10% on the major benchmark indices from the all-time highs and I am not even talking about individual sectors or stocks because they have come off considerably from their Feb peaks. What would you be tempted to buy afresh?
It is best to go with economically sensitive stocks which have been beaten down and top of the list over there are banks. I think pharma and IT have done well over the past few weeks once the Covid numbers started going up and there was a flight to safety. But these stocks now may plateau out for a few more weeks. From a portfolio outperformance point of view, a good strategy would be to buy into banks, some of the engineering construction stocks and even auto shares which are basically dependent on reopening of the economy as and when that takes place. So my positioning would be to look for good quality midcap companies which will benefit once economic activity normalises and the overall economy and businesses pick up.
What midcap IT? Where do you expect a strong earnings momentum, deal wins and a focus on digitisation to pick up?
We are getting gradually more positive on midcap IT and after following this sector for almost two decades, I have come to one conclusion that whenever the times are good in the IT industry, midcap IT will tend to do exceedingly well and may trade at even higher premium than the largecap IT purely because of the fact of they will be able to grow much faster.
But initial indications support that thesis. MindTree’s numbers were quite impressive and higher than Infosys, TCS and Wipro. This trend will play out throughout the midcap IT segment. With the usual disclosure that we and our clients are invested, we like LTTS, LTI and
. These three companies in the L&T stable have been outperformers and could do very well going ahead.
Mphasis is another company we are looking at quite keenly at this point of time and we already have invested in Ramco Systems as well as Intellect Design — two product companies and looking for good numbers from there.
What is the outlook on real estate?
The second wave has muddled up the picture for real estate and I would like to be a bit cautious. If this lasts for many more months, then it will certainly impact consumer sentiment and start to impact pricing as well as volumes. So let us just wait a while as far as real estate stocks are concerned. But there is no denying the fact that a multiyear bear market in real estate has ended and going forward, we will see very good performance coming in from real estate companies. It could be six months, one year down the line.
So one could position on a longer term basis, on a two, three year timeframe. One could have a positive opinion or positive positioning on real estate stocks. Again, go for the best in class over here. Godrej Properties is one name which comes to mind, they have been performing extremely well even when the entire industry was having severe problems in terms of growth, this company continued to do very well given its balance sheet and brand.
We are very positive on Godrej Properties. Also keep an eye on the new listing — Macrotech Developers. Given its scale, position, brand as well as its execution capabilities, this could be a dark horse within the real estate industry. At some point of time, many of us had written off
but in the last two, three years, it has given spectacular returns once the debt came under control and they did some strategic deals. Something similar could play out in Macrotech Developers. It is on my watch list.
