What is your outlook on the up move in the market? Do you think that the market can rally further from here on?
We need to a have a binocular vision. You need to be very clear in terms your timeframe. In the short-term anything can happen, but if you extend your horizon we are in a bull market. What we are seeing is intermediate corrections within that bull market. It is very healthy in the sense that we are not seeing individual stocks or sectors rallying continuously for months. What we are seeing is a particular sector running up for sometime, then taking a breather while something else is running. In the short-term, the market will go through these kind of run-ups and minor corrections. In the long-term, we are in a fairly strong liquidity-led bull rally. How and when will it come to an end is anybody’s guess. We should not try to pre-empt the market tops and bottoms. It is practically impossible to pick out the tops and bottoms. You can get a sense of the market direction but that’s it. From a longer term horizon, it is more important that you get your stock picks correct.
How do you pick stocks in such a market where valuations in most of the names are high?
Market valuations have been high for a long time now. This is a function of a lot of things. One is interest rates and the second is global liquidity. Interest rates are at zero or in the negative around the world. There is going to be an interest in stocks or in risk assets with some amount of yield. Valuations are, therefore, going to be expensive. That is the world we are living in today. Having said that, what we really need to do is to focus on companies in India where growth is being delivered in terms of topline and bottomline.
If you look at the Indian market history, what really makes a difference to stock price returns over a period is growth. If you are able to pick out individual companies which are on a firm secular growth path, a lot of valuation concerns can take a backseat. By no means, I am saying that you should go out and buy very expensive stocks. Even now you can look at companies which have strong and secular growth for the next couple of years and offer some amount of valuation comfort. I am not saying you are going to get something at a 10-12 kind of PE, but maybe you can buy it at Nifty PE levels of 35-37.
Do you advise that one should move into largecap IT and largecap FMCG stocks where there will be some amount of stability of prediction even if the Dollar Index were to move or yields were to go up and down?
Whether you get into IT or FMCG, your portfolio needs to be diversified. So for a long-term portfolio one very important aspect to remember is that you should always have some stocks which are not doing well. Those stocks will help you when the markets turn. If you have a well-diversified portfolio, it could comprise of largecap IT stocks, chemicals, healthcare, pharma and all those sectors where there is a possibility of secular growth in the future. I think we can still build a reasonably good portfolio. The important thing right now is to have an overall risk management. So you should be very clear as to how and when you would be taking money off the table and that will be basically dependent on your time horizon, whether you are a short-term investor or are a long-term investor, what kind of stocks you are owning and what is the kind of liquidity in the stocks that you are invested in. So all these factors should determine how you are building up your portfolio.
