Is there a merit in buying auto stocks? There is a pressure on margins and a squeeze on the topline.
You will see some pressure on the margin from two factors – input prices and operational gearing. You could see a sizable decrease in profits if lockdowns do not open up very quickly. People will be wary of rushing out and buying cars at the moment.
The IPO market is suddenly getting hot. I am not talking about small IPOs. We are looking at two mega IPOs of Zomato and Paytm back to back. Is this a warning that the market is likely to peak out because a bunch of IPOs coming together can rob the market of its liquidity?
Yes, it has in the past. But in the very short-term, if liquidity is still around then it is not going to be like what happened earlier. Sectors which are underrepresented in the marketplace will catch investors’ imagination and that will be good. Some retail and high net worth investors might take some money off the table to invest in these IPOs. That could have an impact in small and midcap stocks where most of these people are playing. So it depends on what is happening globally and if it coincides with any kind of market fall.
At the moment, we seem to be in that Goldilocks scenario where it does not matter how negative you might feel or fundamentals might look a bit weak, the market is just going up with liquidity. So I would not be surprised if you have good IPOs and the market remains buoyant at the same time.
What are your thoughts on digital companies and the new-age IT companies? Do you see a lot of potential within the space that investors can look at?
Digitisation is not going away from us now. That is for sure. It is going to be a multiyear growth area. It depends on the valuations you have to pay for. It is easy to paint every company with the same brush, but I would say that you have to look at those which are well-placed to take advantage of it. So not everyone will be benefitting from it. You have to do your homework in terms of which companies to go for.
What is the right way of looking at insurance stocks? Do they have the potential to create wealth from these levels?
There are headwinds in the short-term, but overall the sector looks well poised. The whole financial services sector, from insurance to asset management companies, look set for years of very strong growth. Long-term prospects remain very favourable. We will see a multi-year growth across the board for insurance companies and that is the same for healthcare as well. There might be short-term blips but those are opportunities that you should be using to add them to your portfolio.
Where is it that you are sensing an opportunity within the infrastructure and real estate basket?
When affordable housing started, we knew it would have an impact at some point on the overall demand for housing, but Covid changed things. It is very difficult to play this sector because there are very limited number of real estate companies. Outside of that, you tend to play it through the materials side. Unfortunately, most of the stocks are trading at very high valuations. So I think in the short-term, I would not chase them at this point. But it is going to be a multiyear growth area. I just feel the valuations are a little bit high at this point of time. A lot of those companies in the small and midcap territory look frothy. Every company in the sector seems to be painted with the same brush. Everyone cannot be the winner. So I am a little nervous on midcaps and smallcaps in the very short-term.
