With all the news flow around Covid and the state election verdict, do you think the upside for the market could get capped? Does it open a significant downside of anywhere between 5-10%?
We are seeing a lot of momentum in the market, especially in some midcaps. Even now the retail seems to be buying. I do not think FIIs are selling meaningfully. As long as liquidity is in, this market will remain range bound or at least is not going to fall tremendously. It is going to take something else and perhaps something more international in nature for our market to crash. I am not afraid of a very steep fall, but 10-15% would be a normal correction. I would expect that. We are still not even 10% from the top. So we have not seen the correction yet but I do not see that happening because of liquidity.
What should you do in this market? Do you take partial profits off the table or stay put?
I am going to keep the emotion out of this. The market will benefit as Covid wipes out weak players and SMEs. It helps those who have access to capital. The largest companies of India which are part of the listed universe are benefitting. That is why the markets do well when the economy itself seems to be in trouble. In effect, the rich are getting richer and the poor are getting poorer. That benefits the markets because the markets belong to the rich.
The long-term future of the market is at stake. In the short-term, I do not see any problem because right now the people who have money cannot spend it, even if they want to they cannot travel, go to hotels or restaurants. So the money comes into the markets.
The pockets of excellence will continue to be exports, infrastructure and tech related companies. I don’t think you can make a big long term call on the rest.
Do you think the current valuation of IT stocks leaves some headroom to buy afresh?
Growth is going to be the driver of valuations and looks like growth is coming back into the IT sector. It may not be across the IT sector, but a lot of players are winning larger deals. So the potential for growth is what drives valuations. So if you are paying 30 times earnings today, you might actually see the company growing at 30-35%. We have seen a number of IT companies doing that, even through the lockdown. I do not believe this is a point at which you can write off further growth. If growth is there, valuations will come. We pay 80 times earnings to companies like Nestle which will grow at 10-15%, then why would we not pay 25 times earnings to a company that has the potential to grow 30%, especially in a pandemic.
