Consumer facing companies like are calling the quarter gone by the best ever in the history, Titan is indicating their business is back to pre-Covid levels. also talked about how things are looking up for them. Is the consumer now out of his shell? Are markets likely to rerate some of the consumer dominated stocks?
I am an eternal optimist and we all generate wealth in the stock market by being generally optimistic. I do not think India needs more evidence that the consumer is back and businesses are revving up? I would go so far to say that the animal spirits in the economy have been unleashed and after many years of down cycle and then the financial crisis caused by IL&FS and the pandemic which has brought stock prices down for a few years. Now, all of it has been reversed and spring has been unbound as far as corporate earnings, economic activity and stock prices are concerned.
So I think that the next few quarters would be fantastic for the economy and for corporate earnings. That will attract a lot of investment into equities from domestic as well as institutional investors. Minor hiccups will keep on coming. No bull market is without its set of risks and worries and in our case it is higher energy prices. What is happening in China and the US — all these risk factors remain but I expect our markets to navigate those risk factors pretty safely. There will be correction but we are in the midst of a superb multi-year bull market.
Could higher energy prices have an impact on disposable income and on India’s macro given that we are an energy deficit country?
There will always be concerns and risk factors and I think at this point of time we are able to absorb higher energy prices considering that we have seen such high crude oil prices many years ago and managed with that. This time around, if we are able to manage those challenges and the demand is good, generally companies are able to pass on cost increases. Keep in mind that wage hikes are also taking place. So consumers’ incomes and disposable incomes are also rising and till now, interest rates remain pretty much at the lower end and that should help us navigate these challenges.
At the end of the day, there are cycles in energy prices and one could expect a correction over there in terms of slower consumption in China or US that can tilt the oil price market on the negative side. I am not that worried at this point of time but the market will look at short term aberrations and correct and when it corrects 5%, 10% even 15%. The investor should take advantage of those corrections to enter into stocks they have missed out earlier. While one may be a little bit cautious at these levels because of emerging risk factors and may not put fresh money to work, one can always be ready with the stock list and look for companies one wants to buy at corrections.
Should one go towards platform, technology, or digital companies or should one look at economy related value and really cyclical stocks? They both have a valid argument for the cyclical bulls. The economy is coming back for the IT bulls or the digital bulls. Which is a more valid and a more sensible argument according to you?
One of the good qualities of a bull market is there is sector rotation and it is a widespread bull market which we have seen in terms of stocks moving up. Old economy is doing well, the new economy is doing well, stable companies are also doing pretty well. We have a whole host of choices of which scripts to invest in. If one creates a nice balanced portfolio which will have platform companies, which is the new age businesses and a few of the old economy and commodity companies, that should do well. One acts as a counterbalance against the other.
One cannot see so much into the future but two-three years from now, how each sector and industry company is going to shape up but by creating a nice balance sectorally diversified portfolio, one can get very good returns or one could invest in both sets of companies. This is a good time to increase the number of stocks in the portfolio as well. There was a time prior to pandemic where just 10 stocks were doing well, markets were very narrow and therefore investors were forced to focus and reduce the number of stocks in their portfolio.
Now one can expand and derisk the portfolio by investing in new age businesses, invest in companies which have unique business models and then we have the whole IPO market. From a retail investors’ point of view, especially the small retail investor, they should not let go of the opportunities emerging in the IPO market and that is a good way to start building a portfolio or adding diversity within the existing stock. I am for both types of businesses and that diversity is something which is advantageous for the investor and not a cause for concern.
