How is this week looking like for the market? Are we in for that big shakeout which everybody has been talking about?
All global indicators point towards a correction now. Every bull market has a correction. People want stocks to go up every day but that does not happen. And if that happens, then it creates an unhealthy situation in the market because then valuations go into the background. In the US market, one level of sell-off has happened and that is being percolated down to other markets, although not so much. US has fallen much more than other markets.
There could be some reversal of flows into risky assets which could create a correction of 5-10%. A market correction after a 100% plus move is not bad. In fact, it create opportunities to buy companies which could do better once the corrective move gets over. So the market needs to give up some gains now. It is very tough to predict the pace. If this is the start of a corrective move, then it could be quite rapid over the next 2-3 weeks.
What are your expectations from Reliance AGM later this week? There are reports that chairman of Saudi Aramco may join the board of Reliance Industries very soon.
That is in the realm of speculation, so I would not like to comment. But Reliance AGM is always bullish in the sense that the CEO gives out a very bullish projection. However, I think there is a significant gap between what they have been saying and what they have been delivering, especially on Jio Platforms. I think that remains the biggest risk for Reliance in terms of what they have promised to investors and what they are able to deliver. There is very little value in the stock at the current valuation.
Diagnostic stocks like Thyrocare and Dr Lal Path Labs have been buzzing off late. Where is the diagnostic space headed?
Overall, the diagnostic space is well-placed in terms of its structure and the fact that there will be a greater consolidation going forward. But the point remains at what valuation can you buy these stocks. I think the valuation across the board is excessive, be it Metropolis or Dr Lal Path Labs. Thyrocare is slightly less expensive, but it is also expensive.
Overall, the diagnostic space has gone into a valuation zone which is unsustainable. Now many of these stocks could behave like how Britannia did. After a huge up move the stock did very well, but has since then been consolidating for over a year now. In fact, in the first quarter of this year, Britannia could actually see negative growth on a YoY basis. I think a similar story will repeat for many of these diagnostic companies next year because Covid testing is quite profitable for them but it is not going to repeat going forward. They will go back to their normal growth rate of 5-10% which used to be there historically. On this base, growing 5-10% next year is going to be impossible. So next year could be a flat one for them. The valuations are extraordinarily high. In the best case scenario, these stocks will consolidate for a very long period of time and the worst case is that they actually give up 20-30% of the gains. At that time, we will start looking at them again.
HDFC Bank has picked up a 5% stake in HDFC Ergo. What could be the implications of that?
We should not read too much into it right now until and unless the ownership shifts. I am surprised why they are doing it at a lower level. If it was at a controlling level, then we could have understood the implications.
