Should we talk about the metal pack? The risk-off trade overnight has been led by the metals. Look at the deep cuts we saw in the metal stocks yesterday from Tata Steel to JSPL to even SAIL! How should one approach the metals at the moment?
On a technical front, these stocks have been in an overbought territory for a very long period of time and the market has been fuelling these long positions by way of adding additional amounts of positions getting built up.
It is obvious that if any negative factor comes up and that too more on the fundamental side of the activity, it would possibly fill the balloon and things could go in another direction. That is what we are experiencing as far as the metal commodity stocks are concerned. China’s Evergrande failure and reluctance of the Chinese government to bail this particular stock out is something which is creating jitters in the global market. Already, they have been experiencing relatively slow sales of real estate and on the top of it, if a large company fails, that could possibly mean that the amount of commodity related prices in the global market would have its impact on the negative side.
The demand situation for a country like India and the globe has not changed much because infrastructure led spending is also happening in countries like the USA big time and also in the Asian pack. The demand side situation would continue to remain strong, though the pricing scenario would probably remain turbulent in the near term. That is where one would probably see the impact in the stock prices. We will have to be facing this turbulence for a few more days, if at all. We get positive news on Evergrande and probably the prices could stabilise as otherwise, the excess growth in the positions that has been taken in commodity stocks could bring down the stock prices as traders would probably want to book profits or cut short losses.
Given all the global uncertainty, can the Indian markets continue to outperform?
There is no doubt in my mind about the Indian markets outperforming in the given situation; disadvantage China is advantage for India and that is the important thing to think about. Majority of the businesses are looking globally and looking at India as a more credible alternative to China — be it in the area of pharmaceuticals, chemicals or startup investing. I do not see too much of a problem as far as I think this approach is concerned and I would expect capital to continue to flow in India from various corners — be it trade related or be it infrastructure or capital infusion related.
On the other hand, we can see the higher amount of growth traction in India is coming from the rural economy. We are about to complete the monsoon season which has been by and large satisfactory. Last year, there was 300 million metric tonnes of crop production. This year, it is expected to be more than 305 million metric tonnes. That could lead to a lot of surplus in the hands of the rural economy and that money could come down for spending which will ultimately help industry to grow faster.
The government’s programme of building infrastructure in the areas of roads, railways, airports, ports, power or power distribution is good news for the industry. I think the consumer is going to be driving the economy here after. So, both the rural economy and the infrastructure led economy is likely to keep that demand scenario quite buoyant.
On the top of it, if we are successful in overcoming the third Covid wave in the October to March period, we could see a resurgence in demand from the unlocking of the economy. The India scenario remains quite optimistic and any correction in the stock price could be a buying opportunity for those who have been waiting on the fence.
What will be a healthy level of correction where one can turn a buyer — 5%, 10%, 15%?
That will be the time to deploy your cash. For many of us who have been uncomfortable with the valuations, we have been keeping a good amount of cash in the portfolio for some time and in this correction, we would be deploying the cash. Most of the businesses are showing extremely good signs of growth including the lenders. The good news is that banks are receiving money in their books which they have written off earlier. So it is going to be an income or write back into their books and that is where many of the banks would become more confident and more aggressive in lending. We are already seeing early signs of that. We have been seeing active participation coming from PSU banks in the lending market. We have been seeing corporate banks systematically trying to grow their books. Unless there is a good amount of demand from the growth coming in, the lenders would not get so aggressive and that is where we are likely to see higher amount of participation and growth in the economy.
If markets correct, will IT being a leadership sector continue to outperform or will that also will get hit because of the market mood?
On the fundamental side of the business, majority of the organisations across the globe have been spending money for becoming digitally equipped as far as their businesses are concerned. And many businesses have also ventured from B2B to B2C which means a digital first approach has been adopted. Indian IT companies fortunately have been experiencing some of the long tenure contracts of a larger size — $1 billion dollar plus — and every quarter, the likes of TCS, Infosys, Wipro or HCL Tech have been signing some of the large size contracts.
The visibility of the business continues beyond three or five years. However, when it comes to the stockmarket, if the market does correct then probably IT would be attracting many other investors who would like to buy into these particular stocks in their portfolio largely because of the relatively long vision of growth. More than 15-17% growth is expected out of IT space, particularly from the frontline companies. With the overall environment remaining extremely conducive for the business, many of the funds which probably have missed out on the IT rally earlier, would want to buy into corrections in the market now.
There are two stocks which are higher on a daily basis, IRCTC and SRF? SRF is now a five digit stock and IRCTC is trading a PE multiple of 70! Do you have any answers?
Deven R Choksey: IRCTC is a great business model for sure. However, the market has probably discounted many more years in advance as far as their revenue and the profit outcome is concerned about the new initiatives that the company has taken. I would probably allow this rally to continue the way it wants to run. I would not like to put more rationale to it at this point of time. Even the FOMO players will miss out the JOER, (Joy of Enjoying this Entire Rally). Better wait for the correction in the price.
