The fundraise for any EV business gets the market excited. TVS Motors seems to be replicating the move?
You know the market is starved of stock at this point of time, struggling to find success stories. EV is a great story and not only on EV, TVS perhaps has the best result among all companies in this quarter. It has got a good product line and pedigree wise, it is good. There is need for excitement as it did not go up so much after the result. So, perhaps there is a little catch-up there as well, but it is a great long term story and they have done a good job with the basic products. So it is not only in EV, TVS is a great story per se.
We have seen weak performance from and Divi’s as opposed to market expectations. Have pharma stocks underperformed or corrected enough for these dips to be bought on in some of these names?
Pharma typically is a five-year story. Once in three to five years, a rerating happens. It is not a story which is going to go up every day. Maybe Divi’s is a little exception, but as an industry, for five years it lagged and then we saw the big flip up. Prices increased 50-60% and it has gone to a slumber again. I do not see anything which tells me today that pharma is going to be a great revival story for two-three simple reasons.
One of course is that API is a problem area and the chemical cost has gone up tremendously at this point of time. Also, a very strange phenomenon is taking place. The demand for medicine has gone down. Basic volumes are also struggling — be it Laurus, Gland or any other. I do not think that pharma is a story which is going to give supernormal returns. Over a period of three to five years, they will do wonders but at this point of time in next two years, I doubt very much that given the cost pressure, given what is happening to the demand supply scenario I very much doubt it is going to be a star. So I am not a believer in a great revival of the pharma story. Some stocks may do well at times, but generally it is a great story at this point of time.
There is a steep escalation in raw material prices and so input cost pressure across industries and more so for FMCGs. Is it time to stay clear of this space for now?
FMCG is not bought by anybody who has a 12-month horizon. One needs to buy it with a five-seven year horizon. A two-year horizon will make you very disappointed because the return will be sub optimal. Dabur has been a great story across 10 years, it is not a great story in 12 months but it is a great story across 10 years. That is true for most FMCG companies. As we go into the cycle of elections, it is going to be very difficult for the government to keep the prices of basic commodities down as procurement prices are going to go up. So input costs are not going to go down very soon and the key issue is not only input prices, they are also struggling with demand traction.
They are not able to move volumes at higher prices in the rural semi-urban area, which is what the story was five years back. Post the petrol price hike and increase in inflation, the discretionary spend of an average rural semi-urban customer has gone down tremendously. So, if you have a five-year horizon, you should buy some of these stories. They are not cheap but five year is a good point.
Looking at the next 12 months, it won’t be a great story till the election cycle starts and money goes back in the rural economy or the government goes for some very steep price cuts in oil products that could be a good trigger for these kinds of stocks. But till that happens, there will be struggle for not only margins, there is struggle for volumes now because demand compression has started to show up from semi-urban areas and we saw that in two-wheeler sales as well. There has been a symbiotic linkage between two wheelers and FMCG because either both do well together or none of them do.
From an overall market perspective, does one need to temper down expectations after a staggering steep one-way move from the 2020 lows up until September?
Well you know what? The electrifying chunk of the market, the youth, have already moved out of the stock market. Most of the people that I am talking to now — the 30 and below segment — who came into the stock market in the last 18-19 months, a lot of them have migrated to cryptos. As cryptos become more legitimate and RBI formalises and tax action formalises, the threat of illegal action also goes away.
So one market phenomenon that has already happened is that quite a large number of young investors have taken the money away into the crypto market. So, there is an alternate investment avenue to the stock market. My son says forget the stocks, he will invest in cryptos. So, I think a big change is taking place.
Number two is FIIs who continue to be sellers for the seventh consecutive month. All they have been doing is stripping IPOs that have been a big money changer for them but net-net nobody has bought into the Indian market. I guess till the FIIs do not change their stance, it is going to be very difficult for this market to get its mojo back. Domestically we are kind of “spent” in terms of how we could support the market. Domestic retail investors have done a phenomenal job to support but for now, if FIIs do not return and global capital does not come in to keep the market going up at the same time, it is going to be very difficult.
My fear is that a lot of more money will get diverted to cryptos as the number of cryptos goes up and the acceptance comes in. We will see a lot of young investors cash out of equities in the next 12 months. So we need the FIIs to come back for this market to get its mojo back.
What about the IPO mania and the new-age companies like Nykaa, Policybazaar and Paytm? Where is all of this featuring in?
This is the lovely menace/mania depending on which side you are on. If you are the entrepreneur, you would be laughing all the way to the bank. If you have got a pre-IPO stock anchor investment listing and you can flip it down and make a killing. If you are an end buyer, I think you are struggling. We saw what happened to Zomato. After the first day, the stock has gone nowhere.
I think it is a great thing happening in this country. We are having one of the largest IPOs. That is a great achievement but at these valuations, you have to be insane to buy them. I never argue with the market. Market has its own way of treating it but I sensibly believe that this is crazy and whenever the market corrects, these kind of stocks will see the maximum damage.
For the time being, for the promoter and for the PE fund which had invested early, it is a gravy train and there is no doubt in my mind that is why, as soon as possible people are encashing and getting out. Even the flipping of IPOs is almost 40-50% within 48 hours. So the moment lock-in ends, they all want out — DII as well as FII. So IPO is a great story but valuations pinch.
Does that mean you did not even apply and you are completely fine with having FOMO (fear of missing out) and instead go for JOMO – the joy of missing out?
I do not know the joy of missing out. It could also be the idiot of missing out. Institutionally, we do not apply for these things. We may miss out some allotment but maybe as we become older, we will convince ourselves that one could have valuations which are linked to now multiple of sales. The best intermediary in the world, Amazon made all its money and valuation from AWS, not from retail.
In India if you think that intermediating fashion and selling a Raymond garment on the net should allow me to give the company a margin of 50 times or 100 times sales, that will be difficult. So more than FOMO, it is a fear of saying that we are not going to invest! That is worse because you look like an idiot don’t you?
