“Everyone needs to be careful about what they are buying, at what price they are buying and more importantly, how much they are buying and what percentage of your portfolio you are allocating to such stocks, “ says Sandip Sabharwal, analyst, asksandipsabharwal.com.
At what price would you be a buyer of Paytm if at all?
As I already commented that I do not think I will be a buyer in Paytm at any price simply because of the fact that I do not really understand what their business model is to get to profitability. If the model is that they eventually want to sell out to someone, then it is fine. Otherwise, most of the segments they are in now are highly competitive. There is no moat so to speak in the entire Paytm model. So, it is very tough to understand. I do not know whether they will ever make profit or not and to that extent, I am not looking at this stock at all from a buying perspective.
Would you be a buyer or have you been a buyer of Zomato or Nykaa since the listing?
Nykaa has not really corrected. Zomato has not come to levels at which one would think that it could be a buy. Zomato still has a business model we could consider buying into but then the prices remain elevated despite increased losses on a continuous quarter-on-quarter basis. So eventually in all these companies, in my view, a time will come when people’s risk averseness peaks out. Then people will say these companies are not going to make profits. Let us dump them all. Then we will get them at good valuations but I think that could still be some way off.
There are companies which come out and say that we do not know whether we want to make profits, when we will make profit, we are not bothered about profit. We are just bothered about growth.
I would ideally like to avoid such companies which include companies like Policybazaar, Paytm, etc, which will be clearly avoided.
On the other hand, there will be companies which are focussed on profits and growth like Nykaa and that will actually be something which I would definitely like to look at at some price but that has not corrected at all.
These frenzied moves, where people do not understand the business models, do not last. There have been many instances over many decades which have shown that new-age businesses come and people do not know how to value them. So what happened to real estate when the first big wave of companies listed in 2006-07? People did not understand and there were crazy valuations. Most of those stocks fell 90% from the top or more. So there is nothing to say that many of these companies would not go that way.
So everyone needs to be careful about what they are buying, at what price they are buying and more importantly, how much they are buying and what percentage of your portfolio you are allocating to such stocks.
Let us begin with Escorts. There had been reports that we would see the Japanese partner increase the stake. It has now happened. We have seen the reaction in the stock markets as well and the auto sector has been making a comeback on Dalal Street.
Auto has been making a comeback mainly because of the fact that the result expectations of auto auto companies were so low in the markets that when the results got delivered, people were positively surprised. That is how the markets move its delivery versus expectations.
Escorts obviously is a separate story where it is more to do with foreign partners becoming majority stakeholder and thus the possibility of a re-rating of the stock. Businesswise, I do not think it is going to make too much of a difference in the near term at least.
In the auto sector, we like Mahindra & Mahindra. The company is on a good growth path. Now with the new models and agri sector doing well and the cooling off of commodity prices that we are seeing steel now and other commodities could follow — could lead to margins stabilising and improving going forward.
Two-wheelers is a space where I would like to ideally avoid because we are seeing demand compression out there and at the lower end, because of fuel prices, unemployment, etc, the market seems to be saturated in the near term. It will take some time for that market to stabilise. That is the space I would like to avoid at this stage. Unless and until the stocks selloff big time and only correct 10-15-20%, they could come into a good value zone.
What do you make of the fall in the metals pack especially the steel and aluminium names? Do you think that was an overdone sort of a sector and now it is coming back to retracement despite decent numbers?
I have been saying for a long time now that people are too focussed on the supply side in steel without looking at the demand side. China is the biggest consumer as well as producer of steel and demand out there is falling rapidly. Steel prices in China crashed quite substantially and the repercussions of that will be felt all over the world in terms of steel prices over the next few months.
Steel as a story for investors is more or less done in the near term. Other metals have different demand-supply dynamics. Aluminium is still a story which could play out well over the next two to three years. If in consonance with the rest of the metal space, something like the aluminium stocks actually end up giving up their gains and correcting substantially, those could be an opportunity.
