Yesterday the market was looking so different and yesterday we were saying that this is time to get cautious, whether the straight line rally is safe and still intact?
It is very easy to get concerned very quickly when markets fall as sharply as it did yesterday but there are obviously a number of factors. The decline in Paytm and Reliance had a negative impact on the market but we are still eventually flat for the month. It is not really such a big setback for the market if you look at the overall context of it. Anytime you get a 5-10% correction from the highs, it is probably as par for the course, especially after such a strong rally over the past years.
So I do not think there is anything to worry about. Yesterday was painful for a lot of investors but some form of consolidation would not be ruled out. That would not be a bad thing for the market just to kind of tread water for a little bit, waiting for some more catalyst to come through because there is still lots of pondering about how we are going to end the year and the challenges that we go into 2022 with.
The key markets were a little bit more volatile but the reappointment of Jerome Powell as the Fed Reserve Chairman, will soothe the nerves of US investors and calm the markets a little bit. We will just have to wait and see what the next catalyst is to take the markets higher but the consolidation is a thing of the moment.
The specialty chemicals pack has seen a big runup today. Look at how , Deepak Nitrite have performed this year. But now they seem to be in selloff mode. The valuations are matching those of consumer companies. How would you approach this sector?
Within sectors, there will be some part of consolidation because we had such a strong run and along with the markets, we are going to get some profit taking here as well. There is going to be no doubt about it but over the longer term, all these companies in the sector you mentioned have got very strong tailwinds behind them. They will have a catalyst to move ahead.
We tend to forget that in the runup that we saw between 2003 and 2007-2008, there were years where we saw a 20% correction in the markets. So I do not think it is something to worry about overly. I would be more worried about some of the global factors such as the lockdowns in Europe, the potential of the Fed to move up a notch in terms of its hawkishness in fighting inflation. Those would be the things I will be more concerned about.
But do not misunderstand the fact that FIIs have been selling and the reason they have been selling is there are cheaper markets out there. China has started to settle down after a series of government regulations. Evergrande has settled down and the market has become cheap. We have seen somebody move towards the Chinese market, away from India in the short term. These things happen and I do not think one needs to worry too much about the market movement on Monday.
Overall, a more neutral kind of stance is needed. At these levels, market will consolidate first and then we have to see what the catalysts are. One can see catalysts in many different sectors. We saw yesterday in the telecom sector yesterday. Globally there is excitement within the sector and that will play through in India at some point as well. These are the kind of things one needs to look at rather than look at just the big fall that we saw yesterday.
You say that right now global events at play are of greater concern. Will the Indian market once again become a DII market? Is that the way we need to head and think?
I do not think so. There are a number of new fund offerings and the SIPs. A lot of money will go into the markets over the next six to 12 months but FIIs will come back. It is only the role relative valuation is playing at the moment and it is more to do with the fact that they have made a lot of money in India over the past year, outperformed all markets and therefore taking some money off the table and put into work in some of the other markets might see a rally because of the cheap valuations.
Also, things have calmed down in China and the likes of Korea are starting to see good export growth as well. These are the kind of factors which the FIIs will play for the time being but what I think will bring them back a large order would be the fact that we still have to see the benefits of the government spending — whether it is on infrastructure, roads and so forth. That will have a multiplier effect for the economy and already we are starting to see some GDP forecast by brokerages being raised. That will bode well for earnings going forward as well.
So it is a pause rather than it is a sellout by FIIs or FPIs and they will come back because the growth in India would be one of the highest in the world in terms of GDP growth and earnings will continue to follow and that is where the excitement will come again for the market. This period of consolidation is not a bad thing for the catalyst to play through in the form of infrastructure spending which has multiplier effects across many different industries.
What is your stand on the entire pharma or the healthcare rally? Is it time to switch from pure play pharma names ancillaries, the services sector within healthcare?
One can play both because the tailwinds for the overall sector is very strong. We are going to spend more money on healthcare and obviously as the Covid cases come down, people will go back to the normal operations or whatever surgeries they need back in hospitals or treatments that they have been putting off for some time. That has happened globally as well and so no surprises there.
The whole sector in terms of healthcare, insurance, hospitals and pharmaceutical companies which are more offshore than just onshore, the tailwinds will continue to run for many years and pricing power will come back to these companies as we move forward. Now India is back on the map as being the kind of pharmaceutical manufacturing hub given what has happened in China and that again could lead to some M&A in the sector going forward.
There is a lot of excitement around this whole sector and a combination of diagnostics, hospitals and pure pharma should be in our portfolio.
What are your views on the telecom space? Is the telecom story intact?
It certainly is intact. We have hit all the variants which these companies will grow and two things come to my mind; one is that we have all been waiting for Jio to make the first move, but it is Bharti which has come out and said that they do not need to wait for anybody and they are going to hike tariffs themselves and that is obviously on the back of the strength that they feel.
This is good news for Vodafone and the whole sector as well. It looks like it is going to be three-player market but the leadership keeps on changing between Bharti and Jio. The second point I mentioned at the very beginning was that private equity fund KKR is looking to buy Telecom Italia for $12 billion.
So globally, investors are going to move towards the sector. When the US talks about infrastructure spending, it is not just talking about spending in normal roads and bridges, it is also talking about connectivity to many different people in the US. So I see this continuing to happen in India too, going forward.
After years of suffering due to competition with Jio coming in and really disrupting the scene, we will start to see the prices starting to move higher and this will help the bottom line for these companies. Also because Reliance did not do that deal with Saudi Aramco, they would want to see more revenue cash flows coming from the mobile business as well. So the tailwinds for the sector are set to continue leading to up move in share prices.
