The market has not seen a single correction in the last 17 months. It has just been a straight line. What should an investor do? Sit out and wait for that correction which may or may not happen? Or one can be in the market and prepare the portfolio for a 20% downside, 25% volatility. What is a better approach?
So there will be two kinds of investors – one who already has money in the game and to that extent they are looking to deploy new money. For them, this is not a good time and there are others who do not have any money invested at all and who are looking to start off. A lot of people got into the stock market — both in trading and investing — at a very high level. So the perception of risk and actual risk in the market run in completely opposite directions.
Last April was perceived to be very risky. Actually it was less risky because valuations were in our favour. Currently it is perceived to be not risky because everywhere one hears bullish noises but valuations are not in our favour. So to that extent, the risk is higher.
So being cautious does not do any harm. You always keep on getting opportunities in between when some stocks, some sectors fall. Such opportunities have presented themselves this year also and such opportunities will keep on presenting themselves. No one can always be in 100% cash but at these levels, investors who can be patient should have at least 25% in cash and for people who can be more patient, even more than that.
Where is your remaining 75%? If you expect markets to come down, why are you still keeping 75% invested?
I did not say I am 75% invested. I am saying that people who get FOMO, can be 75% invested. I do not get FOMO any longer and so I am not bothered about what the market does in the short run. I am not concerned whether I lose out on opportunities because in the long run, we end up making 15-20% every year.
If you have made 80-100 or even more than that percent in the previous year, you need to sit back and take out some of those profits and do not think that you want to make an incremental 10%. I cannot extrapolate what I am doing to be the position of what a normal retail investor should do. My comments are more directed towards them because more and more people are getting more and more convinced that the market just cannot fall! But it does not happen that way.
We always get clear corrections and then people come in at very high levels and they lose 20-30% percent of the capital. It is easy to say ride out of a wave but one loses out 20-30% of the capital in the markets. When you are entering the market, you should be ready for that but people who lose that, panic at that time and then they exit and think equity is a bad thing.
Actually equity is a very good thing for long term investors as long as you invest the right amount of your assets and when you invest, do not put in all the eggs at a very, very high level.
Abhijit Roy of tells us that he expects a substantial amount of money to flow towards home upgradation now that the festive season is here. That could mean in paints, tiles or appliances and durables. But the point is, valuations are a little on the higher side. Do you think the market will continue to defy that and concentrate on the growth potential?
What happened last year during the festival season was that we came out of a strict lockdown and most of the people did not spend much during the lockdown. Inflation was also low. So as the festival season approached, people had a lot of surplus. As growth emerged in all segments, it surprised on the upside including auto — two-wheelers and to some extent four-wheelers — consumer durables, paints.
This year could be slightly different because the lockdowns have been different, the impact on people have been different and inflation on the higher side. My guess is that selectively companies will do well but the kind of growth which many of these companies based on previous year’s numbers are projecting, may be hard to achieve. Lots of people have already spent money on home improvement.
We need to see how it goes. It will be a broad recovery across the board like last year. We hold
and I like that company because they dominate the segment they are in. They enjoy pricing power and have been able to grow and maintain margins despite the surge in raw material input prices. I am positively inclined on the company for the long run. The valuations are high across the board, but TTK Prestige compared to many other consumer companies, is lesser valued. These days, lesser valuations is also a higher valuation. That is something which we need to factor in but this is a good company and will do well in the next 3-4 years.
Where do FMCG stocks like Godrej, , Tata Consumer go from here? They have seen quite a run up?
Most of these companies are very highly valued. The kind of margins they enjoyed last year will not be repeated now and many analysts are not factoring that in when they are giving strong projections because input cost pressures have been high. Obviously, some import duty cuts could benefit them in the short term, but that duty cut is for a month or so. So the challenge will be how to maintain the margins, because last year these companies cut down on advertisements hugely and now everyone has to advertise to maintain or gain market share. So the advertisement and promotion expenditure for most of these companies are going up.
I would think that for most of these companies, risk reward is not so favourable, For Godrej Consumer, it was favourable but with its recent outperformance and runup, even that is not so great now.
I still like Dabur because I believe that they are doing much better and trading at a proper discount to most of the others. That could still add some upside but for others, a significant upside from here is very tough, unless they deliver some numbers which are totally beyond expectation — a 15% growth whereas the current expectation is 8% to 12%.
