What are you making of this roaring bull market? What can stall it and what is going to push it forward?
There is nothing to worry about as of now. The market has been able to conquer a lot of the fears which we felt in the beginning of August. These sectors can take the market forward. a)The BFSI sector has not performed from January till July. This is probably the time for them to catch up and one of them has already done it.
b)The FMCG sector has also done a very smart rebound.
Banks have been the laggards, have started performing and are not waiting for Fed action to pan out and the final result of tapering. Fed chairman Powell has not yet given any specific timeline for tapering and the market has moved very fast. Banks and other financial institutions have started performing. Banks make 30% of the index and when they perform, we see this kind of euphoria.
In September, the banks still have to catch up some more and therefore we will see a big move in banks like we have already seen in HDFC Bank. So, there is a big potential from the BFSI segment.
is also picking up. Reliance again has news flow on plans to acquire solar energy company and other things. For the past several months, Reliance did not perform. It has also started performing now. As 10% of the index is one stock and that is performing, 30% banking is performing, obviously we are seeing high levels on frontlines.
On the portfolio side, one may not be as gung-ho but the portfolio has not moved as much. But for September, we have started to reduce exposure on midcap IT and increase on Reliance.
Why are markets not revisiting media stocks?
Media still lacks that clarity on the subscription numbers and advertisement revenue. Also there are not many media stocks available. Zee is available but there are a lot of issues regarding the promoters and what they have done in the past.
In the other stocks, people are still wanting to see what is the trajectory on the advertising part because when we speak to the managements of various companies, the place they want to cut down on expenses is advertisement. Now everybody talks about saving your money. Earlier, it used to be travel and employees. Now travel is already cut down, employees cannot be cut much. So the third place where they can reduce spending is spending on advertisements. That trajectory is still not clear.
Also, it makes sense because we are still in that mode of a lot of lockdowns everywhere. Companies are also waiting for the economy to fully open before spending on advertisements. It will take some more time for these companies to perform and therefore there is not much of visibility on the numbers. Hence media is still not a preferred sector for most of the people.
What explains the move in from Rs 5,000 to 7,500 in such a short time? NBFCs have suffered, new tech lenders like HDFC Bank and Kotak are going through time wise correction but Bajaj Finance has gone up like a rocket. What are we missing here?
Sometimes it is not that we are missing something or somebody is smarter, it is just that somebody has made that leap of faith. I have been tracking Bajaj Finance since 2011. At that time, it was Rs 10. It went straight up to Rs 800. That was my first recommendation and it was a 52-week high at that time. Since then, we always had that feeling that we will come back and probably downgrade the stock because it is becoming costlier. It became six times book value and now it is nine times book value, an all-time high.
Every time but when you come back, you actually feel that they are doing much better and they are doing things in the right direction. They are much ahead of time and they have done many things which are right in what was required for that business to do. We are talking these days of fintechs and so many companies have now come up. But all these things, Bajaj Finance have already been doing. They have been doing it in a much better way. I guess, that is what is driving this stock price continuously.
Also, they have not been reckless. During times of pandemic, they were very conservative. Now they have improved and the latest trigger is from the three apps which are likely to come up in October. And then the AMC business is coming. So there are a few triggers which are playing. Also, it is more to do with valuation. If you want to give valuation of 100 times to any new fintech player, why can’t the same valuation come to this company because here is a traffic that is playing out. Also, there’s the fear of missing out (FOMO).
But they did give a profit warning last quarter when retail NPAs went higher. How come markets are not recognising that? They did give a warning that AUM growth will slow down. So if the normal business is slowing down, why is the market not getting worried?
The fact they acknowledged it gives them a better place in the eyes of the investors. They have acknowledged the problem areas and once you acknowledge then obviously you will take steps to improve on that. This is a management which has a lot of credibility.
