Quite a bit of weakness and now we are falling in line with US markets as well. Finally, the fall has begun. What do you do now? Do you play for India’s resilience or do you buy the dip or do you try and see where the selling comes to a rest?
I think it is option three. We need to wait it out although we might be falling in line like you said. I think we are way off, the divergence is so significant that it puts at a risk because the RBI also tried to control currency depreciation for a long time, it created a false impression of stability and I think they are also moving aside now, rather they should, because with such a significant dollar surge, there is no way you can protect your own currency and it makes no sense to do that.
Hopefully, they are not utilising forex reserves just to protect the rupee, which is a futile exercise. Valuations in India are significantly higher than most emerging markets or even developed markets now. So that creates a note of caution and now we are seeing the technology for so many months. We have to be careful now. The brokerages after 35% fall are coming out with caution notes. We need to be still cautious there but as the management and the analysts turn cautious, in the next three-four months, we might actually get opportunities to buy into these stocks.
After the consolidation of the group companies, we understand that Tata Sons has commenced plans to halve the number of listed companies and to conglomerate it to about 15 from 29 in the coming months because they want to focus on investing in fewer but bigger entities from a shareholder perspective. How do you read this news?
I think it is a very positive move, directionally long term, because for any group to handle so many companies becomes very tough, given when there are so many overlaps between the companies.
All these metal companies were set up as separate companies due to some reasons or the other in the past. Those reasons no longer exist. I believe consolidation is long-term positive. Short-term, the impacts might be muted but we have seen that consolidation restructuring with
and Tata Consumer. All of that helped shareholders longer term. I also believe this will help shareholders longer term.
ET Now: What is the view on some of these crude oil price linked stocks which are slipping to eight-month lows? How are you looking at the GRM trends for some of these candidates in trade?
Sandip Sabharwal: GRMs are very tough to predict because there are various dynamics which go into it but overall directionally, crude oil price fall, product prices fall and their economic weakness. Normally we see these margins moderate. I believe that moderate margins will continue and might continue for a longer time than earlier because the earlier spike was due to anticipation of shortages.
Now with an anticipation of a global slowdown, those fears might not be there. The fear factor on the margins is moving out and they will go back to normal levels. The best of the refinery play is over. There is no big play left in these companies now.
How is the market going to read into this rejig at ? They have named Rajneet Kohli as the ED and CEO and Varun Berry has been elevated to the Executive Vice Chairman?
Maybe it is part of succession planning and they are giving time for the succession planning to play out. Overall, it is not a negative for sure because it is not a sudden change. I would say that this is not a development which should impact the stock price per se in the short run.
Do you think the market was unfair after the RBI notification on third party recoveries because the management did clarify that their recoveries are not going to get impacted?
This always happens when the overall sentiment is negative and on top of that, you get any such development and psychologically people do not evaluate the exact impact of that and the stocks tend to correct more.
A similar case occurs when there is some positive development. When companies announce some significant increase in disbursement or some small positive development and the market is positive, then the reaction is that way. Immediate recovery might not happen because the overall financial sector might be under pressure in the near term.
I like M&M Financial because they will benefit from the parent doing well as well as improvement in rural sentiments and improvement in the balance sheet. They have a 27% capital adequacy ratio which is quite high. But we should wait for the overall markets to stabilise before jumping in to buy.
What is on your shopping list and at what price point would you say you are going to use the poker terminology – and I will go all in?
All in, in the near term will be tougher because these macro headwinds are not going to go away soon. We have to take measured moves at times. Giving exact levels of the market is tough but I will track global panic indicators.
The global panic indicators are the CBOE VIX, typically a 38-40 level, currently at 28. That will indicate some sort of bottoming in the short term. At that time, we will be looking to buy. What we buy depends on how much what corrects.
There is a significant list of stocks we can buy but then some stocks might fall 5% and others might fall 20%. That might become a better idea to buy at that stage. I would think that October could be tough for the markets, there is too much of a sentiment of buy-on-dips in India. No one is looking to sell and as the sentiment sours, some of the short-term traders and investors might want to bail out and that will give better opportunities.
Now I would still avoid globally-linked sectors like technology and commodities. I am looking to buy other sectors like capital goods, autos, some auto ancillaries or some of the reopening trades which should also correct. They have not corrected much. So all those would be on the lookout list.
Give us a Navratra stock idea.
Diwali might actually be the time to buy. It is tough to say because we have to monitor stocks and how much they fall. People want to buy on every dip. I do not want to buy every dip. We will just wait it out and talk about stocks. Even then, nothing is coming to mind because I am not looking to buy anything.
