The selling in the month of December is unlike what we have seen in the previous month of December. Historically the month of December always has been a trend month as markets have always gone higher but this time it is different. While fundamentally nothing has changed what has led to this massive selling in mid and small cap stocks and sharp unwinding in the Nifty?
Only two ways to explain it; one is that there has been a irrational fear about COVID returning and a lot of people got scared that Indian markets are sitting on all time highs and if there is another COVID wave what will happen. I think that has led to some sort of forced selling by some leverage investors.
Secondly what always happens is that whenever there is a period of relative calm, people build up their position and borrow to invest in margin equity investments. As many stocks get fancied it leads to more retail participation, HNI participations which builds up and whenever there is a correction of more than 10% then again there is some sort of forced selling coming in.
So I think the behaviour of the Indian market is largely explained due to that rather than anything happening globally or on the economy per se.
Like you said this sort of December is very rare. In fact as on Friday’s close this was the worst December in the last 30 years. But I think I find this correction to be good as it has removed lot of unnecessary spot from the markets which is giving some decent opportunities in some sectors and some stocks.
So are you of the view that markets have reached a good buy zone where you should be buying the fear?
Yes, I think specific stock wise definitely because many stocks have fallen 20-25% also and wherever fundamentals are intact we need to look at them and possibly buy them. There is huge consensus today that first half of 2023 will not be good for the markets and then as all the issues get resolved second half will be very good. This sort of consensus is seen after a very long time that itself for a contrarian investor builds up a case that actually the first half might be good.
Give me an example of what has become cheap which you always wanted to buy and suddenly is in your buy zone now?
I think from the large cap side I like at the current price because it has fallen despite couple of quarters of good results. So there is an anticipation of some sort of slowdown etc. but margin aptitude still is seen. So on the large cap side I think that will do well.
I believe insurance companies which were very fancied last year have done very badly this year and especially the selloff in something like Insurance has been quite drastic from a price level in terms of percentage appreciation at 440 odd levels.
I think the stock offers decent potential so from relatively larger companies these two definitely come to mind.
Your ideas in this market carnage. What would be at number one, what would be at number two, what would be at number three?
I am very bad at quick fire rounds. On the large cap side like I said from a percentage gain perspective Maruti,
look decently priced at this stage. On the midcap side there are a lot of companies with upward potential. We have talked of and it ran up to a 52-week highs earlier during December and now it has fallen around 20% in this correction and I think that is good for the next two, three years.
The stock trades at just 8-9 times earnings so that should do well. Sugar overall as a space looks decently placed for the next one or two years. But the stocks have not fallen so much in this carnage. So I like Balrampur and we can possibly time their entries into the stock depending on how the market behaves.
Wanted your take regarding as well and I am not sure if you got the chance look through the news but the company has made a tie-up with yet again. We had all seen that 15% slip earlier in the year when they had been talking about an equity investment at the entity level. But now this is a specific project coming, your take as far as the entire real estate sector and Godrej Properties?
Real estate is going through a good phase right now with decent sales momentum but the risk to the real estate stocks performance is to do with obviously interest rate rise to which real estate tends to be the more sensitive sector.
And secondly, the pricing uptick is not much so most of the realtors have been able to do volume growth. But in terms of percentage hike in per unit value that is not maybe happening in most large cities and with cost pressures that impacts their margins.
So I think those are the short term risks so I would still think that the real estate stocks after the huge run up and some corrective phase subsequently have not still gone into the value zone at which one would like to buy them. Overall story is good for the next three to five years but I think we could still get better prices.
Something like a is in the news. They have received a letter of award from the ministry of airways just recently. We have also seen an L&T cross the market capitalisation of three lakh crores. This theme clearly seems to be one that everyone is betting on for the next year what within the space do you like?
See all the larger companies like L&T, ABB, Siemens are very well placed for the next few years. It is just that the run up especially in Siemens and
has been so rapid that valuations have gone through the roof so I think that is the only issue.
So that is where we need to look at opportunities to buy into these stocks.
L&T has also done very well but L&T I still believe even from the current levels can offer double digit returns because of the kind of order flows that are happening on a daily basis on the balance sheet and its valuations have not zoomed up as the other large caps.
If Mahindra & Mahindra and were dark horse of 2022, could it be and in 2023? Maruti, we have already spoken. Hero MotoCorp, I mean nobody likes it. Everybody feels that they have lost their mojo in the two-wheeler space but they still have a market leadership, they still have cash in their books and they still have the Hero Brand.
That is true but I think the management of Hero MotoCorp has been continuously giving bullish commentary for so long and then they did not deliver. I believe the stock will not do anything great and even their product categories are under pressure. The entry level bikes are making decent investments into EVs which is necessary and that would help growth going forward at some stage but I still think that there is no big story there.
M&M, I would think that despite it doing so well in 2022 will do very well in 2023-24 also because of the fact that all its portfolios are doing well.
SUVs are doing well and tractors are coming back strongly and given what we hear about farm produce prices and farm incomes, etc, I would think the tractor segment should actually do better than what even the companies are expecting.
Considering the news and I am not a medical expert to say that which way the virus is going to move but what I understand of the China spread is that it is not going to be having such a large impact in India considering the nature of the virus and the fact that Indians are vaccinated. Is it a good time to buy into hotel, airline, hospitality stocks because they fell because of what happened in China?
I think people should buy because even now the next two-three-year story remains very strong for most of them. It is again a story of a lot of people getting into them suddenly in a short period of time and then as soon as the stocks fall they lose conviction and then they start dumping. So from the short term investors perspective that creates a better opportunity for long-term investors.
Now the only caveat is in the short run we do not know whether is there going to be another wave or not. It does not look likely but what if it comes, so I think that is the jitter and that is what is niggling people in their minds and it could give an opportunity over a few days or weeks for people to actually accumulate. So I do not think that we are going to see sudden fear reversal and run up in most of these stocks. I would still think that they will move up slowly initially and there if there are indications that there is no fresh wave then the move could be very rapid. So it is not that people have to buy today, people can spread out and buy over a few days or a few weeks.
Wanted your take regarding the defence pack as well. We have seen quite a bit of run up but in the last week there has been a bit of correction as well. Does this correction give you a buying opportunity at least for the long term or do you think that perhaps there might be lower levels coming?
I think the first quarter of 2023 could present possibly better values because of the fact that most of the defence PSUs will definitely see follow on action from the government as it tries to booster its revenues because there is no strategic disinvestment which has happened this year so they need to meet their targets.
You could see a series of such offerings running into February, March and that could lead to some pressure on these stocks but that will be the time maybe to buy.
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