Are you too worried about midcaps underperforming vis-a-vis the largecaps or would you say in the context of the run-up that we have seen from the 2020 lows or the price action this year so far, it is negligible and ignorable?
We had a fantastic run in the midcaps in the last three or four months. We have taken a breather right now in those stocks. My sense is the shift has happened from the midcap to largecaps and this is going to be temporary. People will wait for the Q2 numbers which will start coming in a month later. Post that, again we will see the comeback of the midcap stocks. Till that time, it is time for a breather and we have seen a lot of IPOs. The money that has gone to the primary market, would otherwise have come to the secondary markets.
That is also one of the reasons why we saw some kind of break in the midcap stocks. The second most important reason is that for a lot of stocks, the valuations were stretched and they had done quite well in 2021. Some kind of profit booking have also come in those sectors and these are the two main reasons why midcap stocks are taking a halt at this juncture. But stay invested. What we are seeing in the midcap indices and the way the large cap indices have performed post hitting a new high in January first time when Nifty hit the 14,000 odd and we have just now come back from the levels of 2018-19 high of midcap, small cap indices. There could be some more run up left in the midcap indices in the next couple of quarters.
It is getting a little tricky with metals. Up one day and down next day. Is the longer term trend intact and does it favour the bulls?
Metals has been one of the best sectors in the last two quarters. The stocks have done quite well. Most of the stocks have doubled in case of largecaps as well as in midcaps. Obviously it is backed by the good earnings revival in the metal space. In steel, we saw some kind of correction after a long juncture — around 10-15% in most of the stocks from the near term highs. I feel that is just a break in the rally. We will continue to see this kind of volatility in the metal stocks, especially steel, after a fantastic runup.
ran up 22% in July and August and if we see some kind of selloff, maybe 7-8% from the peak, I think that is quite warranted. My view is overall the recovery cycle and overall the firm demand in steel is going to continue. We are hearing about China putting an export tax on a lot of products to control their inflation and to control decarbonisation. So, in the near term, one might see some challenges because iron ore prices have softened up a little bit. We saw some of the metals stocks going down. But broadly, the sector will remain in the focus and this will be the sector which should give better returns from the current levels for the next couple of quarters. It is just a halt in the rally but these are the times when one should buy the steel stocks.
What do you think is in store for Bharti in the longer haul?
If you look at the management commentary post Q1 results, things have been better off and Bharti as well as
have mentioned that going forward, the tariff hike will be there. Bharti is planning to increase its rates in a couple of months or so.
If I look at the overall fundamentals of the stocks, it looks like one should continue to hold on to the stock. Secondly, the fund raising by Bharti is nothing to get worried about. They have been talking about their 5G plan. My view is we should look at the positives of the sector for Bharti as well as for Reliance. I would be buying Bharti from the current levels in my portfolio as well Reliance. I see at least 20% upside in both the stocks from current levels.
On what basis exactly are you saying that? If I look at the last series that has gone by and how RIL did, it was a good up move but 20% up move over how much time?
Obviously these are largecaps with a large equity base and it is going to take at least a couple of quarters for a stock like Reliance to outperform. This is one of the best coming up post Covid rally in the stock at that point of time. All the businesses, Jio and retail and obviously the core business of oil is also picking up. In the near term, the stock might remain in a range but the prospects for the company are quite shining. I think within two quarters definitely we can see 20% upside from Reliance.
