What is the feeling in the market right now? Is it euphoria which is typically seen in the last phase of the bull run?
Markets have been euphoric from the retail investor, trader side. There is a huge amount of euphoria but that euphoria has been there for the last 1,500 points of the Nifty. So predicting when this euphoria peaks out is tough. But yesterday’s move did have reflections of extreme euphoria if we look at the Indian market movement in context of the emerging markets.
China, Hong Kong have their own issues but even markets like Brazil went to new lows and then have bounced back a bit. So markets are very frothy and to that extent this is the time when one can exit and take out some money at your prices. Eventually people try to sell after the correction has played out and then people become desperate and try to protect their gains. But when there is extreme euphoria, it is a good time to take some money off and when the despair comes, that is the time one can invest meaningfully.
So what is the strategy that the retail investor should adopt right now? Is this the time to book some profit, keep the powder dry for whenever the market corrects?
There are various categories of retail investors. Some are just doing SIPs in mutual funds. For them to suddenly change their strategy is very tough especially if they do not really need the money over the next one year or so. But there will be another set of investors who are directly playing in the market or investing in bulk and have exposed themselves much greater than what they were hypothetically exposed to a year back.
It makes sense for those investors to come out and take out at least 25% of their money if not more. Many people suffer from issues related to what to do when we sell. It does not matter what to do. The entire purpose of booking profits and taking out some money is to keep it for some time. It is not that as soon as it hits the banks, you start thinking what to do with it. That is the challenge which the investors have to get through with. I would say 25% cash for people who are investing directly into equity or even those who invest in bulk in mutual funds is fine.
So there are various levels of exposures that people have. Some are heavily into equities. They should take out some profit. For people who are just 5-10% into equities and have just started their journey, they do not really need to change their strategy too much.
Given that this market is rotating, right now deep value stocks are coming back and underperformers are catching up. Could NTPC, Coal India be the next one in line now?
That is always a last of the lot to perform and it is possible that many investors or traders who find it tough to buy into stocks which have become heavily overbought get into these ones. NTPC is a possibility because earlier there were big concerns that they are only into coal, now they are diversifying into selling more solar plants and there could be some interest. I would not rule it out but whether these companies can create sustainable wealth is very tough to predict. In the current market context, these will be a few stocks which still have value but I do not think they will generate huge long term wealth.
Look at Tata Power moving the way it is. Are markets going overboard about what they are planning to do with EV business?
This is typical of a bull market where announcements move the stock. When the markets are not so euphoric, it is about real performance. These days companies announce diversification, acquisitions and the stock zoom up. That is typical of euphoric bull phases. Even in the case of Tata Power, the impact of whatever changes they are trying to make will be seen a few years down the line. But markets are trying to factor it in. We are seeing the same thing in the case of predictions or projections of many companies in terms of buy ratings; these are based on 2024-25 earnings while most managements find it difficult to predict what they will do in the next two quarters.
So Tata Power, JSW Energy have zoomed in the anticipation that there is going to be some significant change in their business dynamics. There will be a change, these companies are changing for the better but it is going to be a very slow process.
Real estate is making a comeback. Why are HFCs not really enjoying the kind of poll positioning which housing finance companies have enjoyed in the past?
The dynamics for HFCs have changed significantly because there are several factors. Most of the banks historically focus more on corporate lending, some focus on retail lending but housing finance was not such a great focus because it obviously has lower margins than many other consumer loans or corporate loans. Now most banks have become aggressive in this space and housing finance rates have fallen to historic lows. Typically banks have their own deposit franchise which most of the NBFCs do not.
So there will be a significant margin hit for most of the housing finance companies going forward and that is something which the market has started to factor in. The big story for housing finance companies might not necessarily play out just because housing loans are going up because the number of participants has increased significantly because corporate loan growth is not there. Many banks are now focussing on home loans and the market share of HFCs will keep coming down.
Will banks lead the markets forward?
There are two presumptions that the market is going to move substantially higher from here, which itself is a questionable premise because the markets are in a deep euphoric zone and to that extent, I do not think that we are going to see a huge upside.
The second part is the banking sector as a whole as per the year-on-year latest RBI data, as of now, the total credit growth of the system is at 6.5%. So banks as well as NBFCs are fighting for growth. Many of the analysts are picturing 12-15% kind of growth for banks. I think there is a mismatch in expectations and to that extent, most of the banks are rallying because of anticipation of less impact due to the Covid Second Wave. But the real money will be made when the credit growth comes back which is not there right now. Overall most banks in my view are fairly valued at this stage or some might be overvalued. Tough to make the case for any significant upside in the near term.
