If there is a growth scare in the world then bond yields should remain low but if there is no growth, then why are IT and metal stocks doing well?
Something needs to give. We need to see whether the growth outlook is strong and if it is strong, then bond yields will shoot up the way they did in the earlier part of the year. On the other hand, if the bond market is saying that the outlook is not as great as the stock markets and a lot of other commodities are showing, then the movement will be in the other direction. But the fact is that markets are in a frenzy zone. One or two sectors are picking up and then they just zooming off. Look at the complete frenzy in the IPO market. Overall in terms of the results that have come out, markets look to be more or less fully priced.
With the exception of banks and one or two companies here or there like and , earnings and forward looking commentaries by and large have been quite decent?
It depends on which sectors you are talking about. Metals are on an uptick and have remained at a higher level. Those companies have indicated positive movement. Technology obviously is benefiting from the entire digital move and that outlook has been positive. On the other hand, commentary from some of the auto companies or for that matter some of the consumer companies on the durable side has been muted because they have indicated a good inventory build up in the system and the likelihood of lower primary sales.
Cement companies have been very bullish. The margins have been at record high levels. Now whether those would sustain or not, we will see but those companies obviously have given a position entry.
Infrastructure, capital goods are where value is still available because the infrastructure investments are moving at a decent rate and typically strong moves in commodities are followed by a capital expenditure cycle because these are the companies which invest a lot and a lot of money rather than consumer companies. So that is where we could see some opportunities. We need to look out for opportunities in capital goods companies. If we look at the large cap side, L&T still looks good.
Sugar stocks have jumped almost four fold. If this turns out to be such a structural play, can these stocks still be bought?
Sugar cycle still has some way to go. What is adding to that is what is happening in Brazil where both coffee and sugar production is expected to be much lower and that led to the rally in raw sugar prices as well as coffee prices. That is also percolating. So on one side, there is this news flow on whatever incentives the government is talking about, but I am not sure how this entire phase can be accelerated because though it is moving at a fast pace, I think it will still take till 2025 to achieve those targets.
The investor should consider that all the developments will take place over the next three, four years as was originally envisaged and to that extent, the sector will obviously benefit. If they give some incentive in terms of increasing the procurement price of ethanol, then obviously that flows directly to the bottom line and that will be very positive. But we need to watch out for all the government is looking to do.
So you are saying wait and watch, do not jump into buying these stocks afresh or adding positions after this run up?
If you are betting that this can happen in two years and there will be suddenly huge amounts of investment and the companies can set up these capacities, it is not feasible. It will take its time. The government on its part can facilitate the process so that it does not get delayed and that by itself is a positive thing. If it does not get delayed, then from where we are to the 20% blended fuel by 2025 itself is a big positive.
