Are you tempted to book profits or stay put and enjoy the ride in the market?
These are so simple questions; unfortunately there are no simple answers. Having said that, if we look at all the corrections that have happened in the last one-and-a-half years, in hindsight they have always been buying opportunities. Of course, Friday was not a day of correction except the intraday part opened higher and marginally corrected during the day, but it is a very difficult call. The answer to that will have to come from two perspectives; one is the traders’ perspective — they will have to look at their targets and keep booking profits and take fresh positions whenever they want.
For long-term investors, the answer will come from asset allocation. If the weightage of equity as an asset class has gone beyond their allocated weight, then it is time for them to book profit so that their risk profile remains controlled because otherwise we are not finding any other logic based reason to reach the answer whether one should book profit or not. We have been having a one-way rally in the last one-and-a-half years. It does not look like anywhere in near future we might see sharp corrections.
But that said, one wants to know where is it that you need to ease off a bit and where is it that you need to deploy further cash?
Keeping aside, asset class weightage reallocation, if we specifically focus on equity, we will have to look at the stocks or sectors which have moved sharply up over the period of last one, one-and-a-half year and in my view, in metals, it is high time that at least some part of the profit be booked even if one does not want to take full exit. So that is a clear profit booking area, partly if not fully.
In terms of reallocating that weightage or taking additional exposure along with the market participation, if one wants to continue to take exposure, then capital goods is something that given the way capex is likely to pick up in the economy largely from the government side, quite a of it from the private side also.
So capital goods, infrastructure — the whole space can be looked at. Real estate has come as a new investor interest area because of the demand that is suddenly there. We know how employment has been going up and how salaries have been going up, specifically in the IT sector. Associated with that, in the financial technology space and all other related space, that impact will expand to other areas also. So real estate is one area where fresh allocations can be taken in terms of the market movement. If one wants to take a slightly contra, long-term call, then select opportunities in the auto sector can be considered.
We Have seen this theme of laggards playing catchup. Even a stock like ITC has started to move but if you look at the laggard sectors that have now started coming back whether it is metals or the telecom, how would you play with this theme?
Historically, there are two ways laggards move or participate or react in the market. One, is the short term participation. Whenever we have the market continuing to go up one way and money continuing to come in. We have sectoral rotation which keeps taking indices to new highs. When the market sees that almost all the fancied, reasonably liquid sectors have moved up, where does fresh money go? The fresh money temporarily goes into the laggard sector. So that is one way the laggards react.
The other way is a reasonably medium term contrarian call that one can take. The laggards have to come back at some point of time. As long as we think that they will come back in terms of growth, in terms of participation in the economy, once can take a medium term call.
So just to differentiate, let us say I am still not sure whether multiplexes can be a contra bet or not and whether they will participate in the reasonably foreseeable future or not. First of all there is no opening as of now; then not opening at full capacity; even if it does, the public will start coming back. So that is one. As I said. one can look at a contra bet, but in my view that is not a contra call, that is a call which needs to be taken at the right point of time.
Automobiles are something where at some point of time, we will see the demand coming back. Companies are good, the listed players financially are good. Almost all of them have zero debt and strong balance sheets. As and when demand comes back, they will participate. So these are the two ways laggards participate, a short term movement because of the market continuing to go up but that is not what I was referring to, reasonably medium term approach is something that can give returns.
How would you approach metals? They have been very volatile of late and that is because of the ruboff from Evergrande?
I do not have the wherewithal to be able to track the price movement of the commodities because global price movements affect the Indian price movement and then based on that demand changes. The government keeps changing import duties and anti-dumping duty based on lobbying and the harm to the domestic economy. The stock prices move much in advance. So I do not really have the ability to put my hand on that but it is certainly time to book at least part profits in the metal sector.
