What is it that you are making of the market? New highs aside, is it time to tread with caution or would you say follow the momentum?
If you are a momentum person, then this is a great time to be with momentum. Momentum is typically a short-term kind of strategy where you exit if the momentum leaves you. If you are a fundamental investor, you might want to still consider holding on or at least do an SIP kind of investment in this market rather than investing all at once. It is easy to say stay away but obviously the market itself is going up so fast that it almost seems silly to tell people that caution is warranted here. But in general, of course, the economy is very divergent from the stock market. We are seeing consumer spending drop very precipitously in the last two or three months.
The Street is getting a little bit circumspect on metals. Credit Suisse has raised concerns about the price-to-book value that most of these steel stocks are trading at. Where do you stand when it comes to metals?
Steel has a very different phenomena compared to most other metals at this point. The demand for steel is relatively little bit higher. China, one of the largest producers of the metal, is actively discouraging exports and therefore the disbalance between supply and demand has caused prices to go up. Results of steel companies have been good and will remain so for this quarter as well.
However, steel is a cyclical and every few years the stocks flare up and capacities get added. We are seeing that right now. When the down cycle comes along, which is inevitable in steel, you are going to see a correction in terms of both results and stock prices. We may be closer to a peak in steel stock prices. The steel business cycle may still continue for a quarter or two more from here but stock prices may be closing in on a peak.
You should play it the way momentum is played and focus on stock price. It is a cyclical business, so you would not want to get in at this point unless you really want to get out in a couple of quarters.
How are you looking at PSU plays? Which ones do you believe merits attention at current levels?
We are long BPCL but the problem right now is the lack of understanding of timelines. It was two-and-a-half years ago when they started talking about divestment. I do not think Shipping Corp or Concor have that kind of visibility yet. In terms of privatisation, I would say BPCL is a good step. We are seeing changes in some downstream companies. If BPCL divestment goes through well, I am sure we will see a lot more. We are betting on BPCL.
