How are you looking at the property stocks? The property market making such a strong comeback also impacts people’s portfolios. Do they encash and then start buying property? Till then, how would you approach the property stocks?
There are two things. One, the property market is coming out of a lull of almost 10 years and as such, there is activity on the pricing front. The activity is lower in terms of the actual prices moving up except in some of the cities but transactions have increased especially after most of the banks and HFCs substantially reduced the housing loan rates. That said, we had a huge up move in most of these stocks.
In fact, some of the stocks which I like like Oberois or Sobha have moved up nearly 2-3 times over a period of just 10-12 months and DLF also has moved up from around Rs 120-130 levels in last May-June to Rs 400 today. Now, investors have to consider what amount of positivity is in the price and what amount of positivity is still left to be built in. There is a lot of positivity left in fact. A disclosure, we have been owning DLF for a very long time and in fact we have pared our positions at Rs 400 today.
I am excited today when I think about the number of Demat accounts which have opened and how the SIP culture has taken over. This bull market in a sense truly and surely belongs to Indian investors.
But it is also a global trend. Given where the interest rates went, brokerage transaction costs have fallen to almost nothing in new generation brokerages like Zerodha. We have seen this happening globally with Robinhood in the US. But there is a change in trend. One such trend is youngsters want to have better asset allocation than what the older generation had wanted. That is a trend which has been there for some time and it will continue.
But we cannot say that many of the investors have now realised that equity is a great asset to own because just around 15 months back, many of the people just wanted to exit the equity markets and go into something safe. So a lot of the money movement also followed the trend and a lot of money is following the trend right now.
As I interact with many of the young clients and younger professionals who come and talk to me, it seems very clear that they want to have an allocation to equity and that is the trend which will continue but if we talk of where the markets are today, I think they are in a deep euphoria zone.
This kind of euphoria is very difficult to sustain and people should be careful. A lot of people just say what do we do if we sell and have more cash in hand? It is not necessary to sell and buy something immediately. Market will always give you an opportunity.
The laggards are now catching up. Whether it is a rally in ITC or news driven rebound in Zee or a dead cat bounce in . Is the market running out of ideas or is this sectoral rotation at its peak?
In bull markets, sometimes buying laggards is not such a bad idea. We extensively discussed United Spirits three, four months back. It was at Rs 525-530. That is when we bought into it. In fact, I have sold off that holding today because we made 45% in just four months. That trend will happen in bull markets as many of the stocks run up too much. Then people search for what has not performed. Even a strong stock like L&T held on and did not perform for such a long period of time; Bharti did not perform for such a long period of time and then they caught on. In fact, L&T and Bharti could have given, on a few months basis, bigger returns than many of the much fancied stocks. That is a phenomenon which is normal in a bull market/ But the only thing out there is that the list of laggards which need a catch up is also going down very fast and very few are left now.
You just talked about how you booked out of DLF. Are there any other names where you are now tempted to book profits or completely book out?
On Thursday we sold out DLF and United Spirits because too much money was made in too short a period of time in these stocks. People do not realise that over long periods of time, in the best asset equity fund, even if you are the top performer, you make 18-20% return CAGR over five to 10 years. So if you get periods where you are making 150% or 160% or returns like that in short periods of time, you need to preserve those returns. It is very important and it is a part of asset allocation.
You started with 100, that 100 went to 250. So do you keep on increasing that or you pull something out? That is what I would suggest. At this stage I am recommending 25-35% kind of cash levels and if markets move up 5%, maybe 10% more into cash.
I would call some of these laggards like Tata Motors, ITC which are now making a comeback, late movers. Would you buy anything within auto or would you completely shrug it off given the kind of problems that the sector is grappling with?
What would happen in autos is that the raw material price pressure could ease off going forward because of issues which China is facing, but then supply and demand becomes an issue. Two-wheelers is a space we should avoid. On four-wheelers, we could still look at opportunities. People who are willing to take some kind of downside can go for these stocks. M&M is a very cheap stock given its own value and the value of its subsidiaries.
It is the most interesting stock in terms of risk reward in the market on autos. Tata Motors still will be challenging given the fact the revival in JLR demand may not play out and that is the main driver of Tata Motors. Valuationwise, although its domestic operations in terms of both passenger vehicles and to some extent commercial vehicles are doing better, overall there is no big story in autos. But given the underperformance, they have some uptick coming.
