What is your take as far as valuations in the Indian market is concerned? There are people who believe that parts of the smallcap basket is appearing frothy.
There are pockets where the market is expensive, but there are pockets where the market is still cheap. We have seen a significant upward movement in the PSU pack. They were grossly undervalued. I think they are still undervalued. The rally in metals is justified by earnings. If the metal prices continue to be where they are today, most of the metal companies, unless they do capex exponentially, will have very low leverage. Deleveraging is going on and so you can justify the (rally in) metals pack.
About the rest, it is all dependent on future earnings growth. On the consumer side, you can say that pockets are expensive. The valuation of Zomato is all about optimism on what it is going to do. So I would say that the market is fairly balanced.
The market correction is coinciding with the launch of big size tech IPOs. What are your thoughts on the IPO market, particularly in the new tech or the consumer tech side?
When large tech companies in the US like Amazon, Facebook or Google came out with their IPOs, they were all considered to be expensive. Companies like PolicyBazaar and Paytm will continue to grow. India has a huge potential. They may be looking expensive today. They might correct when the market corrects, but if you take a longer term view of 5-10 years, these companies have huge potential to grow. Their earnings may surprise in the next 5-10 years.
I am sure that a lot of money is going to come into these companies and some of the valuations can be sustained. There could be a temporary correction, but in the longer term I am very confident that technology companies which have a dominant market share will continue to surprise on their earnings.
Give us the bigger picture view. How is the market likely to behave in the next 2-3 years?
There are both Indian as well as global factors at work. Globally, ESG is making a huge impact. The prices of a lot of companies that are not ESG-friendly are falling. ITC is very attractive at current prices but one cannot invest because of ESG (concerns).
In India we will see higher valuations for companies which are environment-friendly. Companies like Adani Green and Suzlon have gone through a lot of churning. ESG will justify higher valuations of a lot of companies.
I am very confident about metals. After 2007-2008, we never saw capacity expansion because that is the last time we had the super cycle. The prices of all companies went through the roof. We will see one more super cycle in commodities. Super cycles take time to build. There could be temporary corrections, but metal is one area where I am very very bullish on. We could see a huge upside.
Consumer discretionaries like automobiles are dependent on how the economy performs. I am bullish. I personally feel that coronavirus will surprise the market. We may have a third wave but it is not going to be as difficult as the second wave.
