Let us get your view on the overall market?
When the market was at 13,000, I started saying that it looks overvalued to me. Today we are at 15,600 and so it would be disingenuous for me to say that the market has started looking cheaper. In fact, even 13,500 looks expensive to me.
So even if the market was to fall to those levels, I would not be super excited and jump in to buy stocks at that level. I am expecting a fairly deep correction. I have solid data to back this up. When the correction starts, I am not sure when will it happen, it will be very deep because the interest rates are zero in most parts of the developed world. RBI’s interest rates are at an all-time low. Inflation is rising. Overall, I am not excited about stocks at all.
What are you anticipating from Reliance’s 44th AGM?
The entire analyst community looks forward to Mukesh Ambani’s speech. Reliance can post good numbers for the next 2-3 quarters because the GRM (gross refining margin) could improve a lot. Oil refining remains the largest part of their profitability pie. Crude oil prices have been constantly rising for the last few months.
In an environment like this, refiners make more profits because as crude prices rise they can sell their stock piles at a much higher price as compared to its cost. But I have never been excited about Reliance since Jio operations (began). In fact, I think Airtel is doing far better, especially when you talk to ground level workers who connect broadband lines and direct-to-home services.
Jio is struggling a lot in most circles. Having said that, I do not buy telecom stocks and I do not understand that sector. Even if we come down to just two companies in the space, I do not think they will ever have a competitive advantage to benefit shareholders. Their customers would definitely keep getting benefitted if they fight with each other, but there is nothing to look forward to tomorrow on what Mr Ambani says on Jio.
In the next few quarters, its GRM will improve and their oil revenues could surprise. So the stock price could move higher if this rally, which nobody understands, continues.
What is your outlook when it comes to the entire high-beta pocket? How are you looking at opportunity within the capital goods segment as well as real estate?
I have not spotted any companies that I can recommend in both the sectors. We bought a Bangalore-based real estate company but that also we sold off because I think that at some point there will be an end to this rally. And when that end happens, you will see a lot of these companies either disappearing or falling a lot in price. There is no point right now trying to differentiate between companies which are really bad and companies which are good and may fall a little.
You might as well wait because a correction is definitely going to happen right now. On high-beta stocks and financials in particular, my sense is that this pocket will take the maximum beating when things settle down.
Last year, RBI gave a moratorium where everybody could extend their payment of loans for a year or two until 31st March. This year on May 5th, this moratorium period was extended further. Individuals and MSMEs can restructure loans of up to Rs 25 crore. Right now, I have been struggling to find any data on what is the quantum of money which is being restructured. What is the quantum of money or loans which are under moratorium. It is hard to find this data point even for individual companies.
I have been very vocal about Bajaj Finance because it is the largest consumer lender. I was looking at their accounts. Recently, they converted about Rs 8,600 crore of their loan book into flexi loans. That was highly debated amongst analysts, but that puts about 20% of their entire assets under management or loan book in moratorium. This is staggering as you never know how much is coming back. To me, it seems like we are at the fag end of the party. It is 4 AM, everyone is high and nobody knows where this is going. Personally, I am fairly negative on financials and any high-beta names, whether it is banking or NBFCs. This could end badly. So I am happy to sit out, as I have been doing for the last five to six months. I am not excited about financials or stocks in general at this time.
