Do you think the exuberance that we have been witnessing in the market is justified?
The rub-off effect of the global market is one of the major reasons why the Indian market is holding up. However, we have seen that the Indian market has held up much more than many other Asian markets like Hang Seng, etc, which have fallen over the last couple of weeks.
Companies are uncertain on the growth outlook. This time the rural demand is also likely to get impacted unlike what happened last year. So that leaves a very small pocket of stocks which would do well. Companies related to exports like IT and pharma can do better.
Those in soft and hard commodities can come under stress at some stage because it has been a straight line up. A straight line up move typically also gets sharp corrections. In the results we have the kind of stress that Bandhan Bank has on its balance sheet. Many banks or NBFCs which have been very aggressive lenders could come under stress going forward. That is where people need to be wary of. So the subset of stocks or sectors which could continue to hold on is reducing, especially given the fact that the stocks have not corrected despite the adverse developments happening around us.
Many brokerages have come out with aggressive price targets of Rs 7,500 on UltraTech Cement. What is your take?
I think UltraTech remains the best stock for anyone who wants to hold for the long run. In the near term, volumes will come under pressure and costs have moved up. Immediately after shutdown we will have monsoon, which is typically a lean period for cement companies. So in the near term, earnings could be significantly challenged.
There is also growing concern that why cement prices are holding up when the demand is so low. If that becomes an issue, then the short term stock performance of cement companies could be impacted.
In terms of value, India Cements continues to be of significant value. It is only cement stock trading below its replacement cost. We had exited UltraTech some days ago because of valuation concerns but I will be looking to buy that going forward at some stage.
