Looking at the market, is it time to tread with caution? Would you be tempted to take profit anywhere?
No I do not think there is any reason to be cautious. The market has reached an all-time high. So, if we are sitting on good profits, there is no harm in booking profits. We normally do that once the weightage of stock goes beyond its required allocation because of the stock price movement. Then we shave that out. So if we start with 5% and the price doubles so that the weightage becomes 10%, we need to bring it back to 5% and that is the profit booking we do. That is a normal course of action and not new for this particular rally.
But the good part is that despite the fact that we are sitting at all-time highs, there are still buying opportunities available. Normally, if it is fatigue or if it is a saturation point, then one should not be able to find some good opportunities to look at. The HDFC twins have still not performed. They have to catch up and that will probably take this month and the next month. Then there are auto stocks, capital goods stocks. So there will be a lot of opportunities despite the fact that we are at all-time highs. We will keep getting newer opportunities and that will create alpha.
Real estate seems to be a hot property right now. Would you say it is a good time to jump into any of these stocks or would you wait for dips?
There is a structural change in real estate. Once the sector comes out of hibernation after 10-12 years, it will obviously see much bigger gains. In these 10 years, interest rates are at the lowest, cost of capital is at the lowest, inventory which was a big problem for all these companies have come down to a very manageable level as none of them were launching any new products in the last three-four years.
All these companies have strengthened their balance sheets and also the regulatory infrastructure through RERA has become very strong. It is actually working. All these things are making the sector much stronger and cleaner. Now with all these changes coming in, the stocks have also started performing. We have already realigned ourselves in some of these stocks; DLF is part of our portfolio
We are playing the theme through home improvement also. So we have stocks like
, Polycab and Cera Sanitaryware as part of our portfolios to indirectly play the real estate theme.
Would you go for the deep value stocks like NTPC or Coal India? Many experts are saying it is time to skew the portfolio from mostly growth to mostly deep value stocks?
I do not think we are looking at it in that way because we feel that whatever has not performed, there is some reason for it and unless that reason has changed, whether it is of deep value or not, it makes no sense. It may remain languishing for a very long time. Most of the public sector banks and also Coal India, ONGC and NTPC have been the largest in their sectors since the time of inception. It is not that today they have become the largest. The problem is with their efficiencies, how they manage their capital.
So we have companies like Oil India getting decimated just because of some wrong policies. So unless there are structural changes, we should not look at any of these stocks whether there is deep value or not. Within the power sector we are positive only on the transmission and distribution (T&D) sector. So, Torrent Power, Tata Power fit the bill. India has invested a lot since independence on power generation but T&D has always lagged. I think there is a lot of potential there. With renewable energy coming in vogue and energy exchanges coming up, there will be a very good effect there. These things will change the course of who will make money in power. The biggest generators of power will not necessarily make the most money. It will be those companies that align with the changed environment, who will make a lot of money. We have been aligning our portfolio to those kinds of themes.
What are your views on the comeback of the telecom sector?
Airtel is in our trading portfolios mainly because of this spurt and all the activity in the stock. We have no view on Vodafone Idea.Valuation wise, all these stocks always look attractive. The problem is with their pricing power. Right now, the market is not looking at the long term. It is looking at whether near term issues are being taken care of. Companies are building war chest, they have a lot of money available and the government policy will ensure that at least the next three, four years will go by.
But unless the ARPU rises, the telecom companies will have no pricing power and they will remain in the same shape. How many times will the government come and save them? How many times will they keep on borrowing money? Unless that business strength comes, it is not going to work. So technical play can be there and one can have a trading call, but we won’t consider Airtel for long term portfolio investment.
