Are you in a celebratory mode given that it is Friday and the markets have had a record breaking week or a little sceptical about the speed and the pace of the rally?
There is no harm in celebrating what we have achieved but at these levels, there is very little scope for margin for error or going wrong. So I will definitely advise investors to be a bit cautious. I am not saying there is no opportunity for stock picking, nor am I saying that the valuations are completely undeserving, but the fact remains it has gone up pretty fast. Yes there is a global tailwind. Yes there are a lot of domestic positive factors but since it has moved up so fast, probably a bit of consolidation profit taking may happen at these levels and it will be good for the market if that happens.
But having said that, multiple sectors are going through multi-year rerating and it will be definitely worthwhile to look at stocks from these sectors for building your own portfolio.
Linde Oxygen has really been on a tear?
I think the oxygen crisis and Covid related oxygen demand, brought attention to this stock. It is a great company. It used to be British Oxygen which was subsequently acquired and became part of Linde. It has great management with an excellent track record. There is possibly nothing wrong with the company’s performance which has always been good and with this incremental awareness and demand for oxygen, they are having a great year and they are expected to continue this going forward as well. Specific reason for today’s increase, this week’s increase may be a bit unclear to me at this stage, but by and large, a good stock to hold, investors can buy even at this level if they have a one-year view for their portfolio.
What are you keeping in mind for the new trading week?
It will definitely to a great extent depend on the global cues. Every word of the central banks, particularly the US Fed is being matched on by investors. There is definitely a risk on mode post the Jackson Hole statement by Colin Powell. They categorically said that no interest rate hike is coming in the near future. They are talking about N22, N23 types before the interest rate hikes and that encourages the market.
The tapering will happen but that will only reduce the balance sheet size of the US government and that should not affect the market too much, that is what global investors are thinking. We believe the move will continue to remain positive. However, one needs to watch out for the levels at which we are trading. In some cases valuations are actually looking a bit stretched. So one needs to be careful.
One should not only try to enjoy the benefits of the bull market rally, but also be a little cautious on stock selection and that is what we have been advising investors. If you buy good quality stocks, it does not matter whether we should continue to see positive movements in the markets for the foreseeable future. A good stock, given one year, should be doing well irrespective of the interim corrections.
Where within the traditional to digital plays do you find opportunities?
Everybody is excited about the life insurance space. The entire insurance space is a great opportunity for investors. We are just scratching the surface. Life insurance premium to GDP in India is about 3% which is abysmally low and much lower compared to many other smaller Asian countries as well. We are just seeing the beginning of a great phase for insurance penetration in India and some of these companies will become really big. It will be something like what we saw for the private banks 20 years back, when an ICICI or HDFC started.
We are in that phase as far as private insurance companies are concerned, particularly in the life insurance space. For example, HDFC Life with its latest acquisition is getting further distribution capability. This is definitely an area where digital is playing a huge role. The online business, the online customer acquisition will become big and all the companies are moving towards that.
The second sector is also within the BFSI space — private sector banks and some of the better PSU banks. They are adopting fintech like there is no tomorrow and they are pivoting their bank to technology platform kind of a scenario. These will start attracting a different kind of valuation going forward and this is in the BFSI space.
Of course, digital companies, particularly the technology companies are in the forefront of emerging technologies. Happiest Minds and other newer generation technology companies have evolved as digital plays. They were not traditional body shopping outfits which are trying to provide digital services. They started as digital entities and they have a very bright future.
There are multiple opportunities but here we are talking about capital market digital space.
If I were to ask you about the food space, which one would you own — Jubilant or ?
Unfortunately I do not own either and at this stage I am not recommending either. There is fundamentally nothing wrong; both these companies are good. Jubilant has built a fantastic brand and Zomato is working on creating a good company. I am sure that with the kind of funds they have raised, there is great opportunity for them in future. But at this stage, the valuation is a bit stretched and I really cannot comment on these shares at these levels. It is just that I am not comfortable acquiring these stocks. They may be digital, they may be one of the best emerging companies, but I am not comfortable.
