How have you been observing the way markets are coming to terms and as governments is taking shape, market is also taking shape and has come back from the depths of that kind of a capitulative move coming to terms. What are your observations? Market has moved on from that event now?
I think if someone just slept through the event and then came back to the markets today, they would have seen that nothing much happened. Like some stocks have obviously gone up and down, but then that is part of the market volatility. You need to come back, focus on the fundamentals again and try to look at companies and stocks which are at valuation at which you would like to buy them. You were pretty vocal about the fact that Tuesday perhaps was a ripe day to actually buy into some of the stocks or add positions as well. So, where is it that you found opportunity in Tuesday?
The first focus was to get into the largecap ones which were beaten down. So, stocks like L&T, some auto stocks, something like an ICICI, Bharti Airtel, etc, where I think the bounce back could be faster. So, some consumer names, etc, like Dabur, etc, we had got in earlier so they in any case rallied, so we did not buy at this point of time, but we are still holding on expecting a revival in consumer demand due to good monsoons, then ebbing inflation and hopefully some friendly tax policies going into the budget.
Now that entire fear psychosis of the market that just because there is not a strong majority coming in, the reform momentum which slowed down is getting reversed. What are your thoughts on the shape of cabinet to come? There is talk that perhaps the government may want to retain strategic areas of focus kind of ministries, defence, home, finance, etc, external affairs, but maybe open on giving away, say, rural development, ministry of telecom, all of that?
Yes, so I think the railways is critical because their significant investments were going on and the direction of the current railway minister was very good. Now, if there is a change in helm there, I think that could be somewhat disruptive, although directionally upgradation of the railway stations, upgradation of the trains, etc, will continue in my view but it could slow down. So, I think that is one risk so that is something we need to observe who comes in out there. In defence, obviously, I think the core party, BJP, should retain and if that happens, we should not see much disruption. So, the only key thing is in all the portfolios you talked of is railways and I think that is something which will need to be keenly watched. Any thoughts on Finolex? Do you track this name or this space? Anything which you have in your portfolio?
We do not have any of the wire and cable stocks, but I think Finolex I have tracked and recently prior to the results and subsequent to management commentary, obviously it has done very well. So, the entire space is doing well in terms of volume growth and it has actually been leading the entire growth trajectory in the consumer durable side in a way.
But I think if you look at valuations overall, most of these stocks now trade between 50 to 80 kind of price earning ratio which I think is excessive for a wire and cable business.
There is also a lot of concern, especially since the election verdict about what is going to be the future of PSU companies. Now, on one hand, we all know that that is where the froth was and some of them were quoting at peak valuations, which they continue to do so post the recovery that we have seen after Tuesday. While nothing may actually change for the growth path of the companies, do you think they could perhaps go in for either a price wise or a time wise correction? And in that lieu, does it really make sense to take some profits off the table if you are not looking at a very long term horizon, for short to medium term?
I would say yes to all of the points you made. So, nothing much changes for the growth paradigm of these companies. Valuations are excessive, continue to be excessive. Many of the stocks trade at sort of double the valuation at which they should ideally be trading at.
So, there is a case for both time wise as well as value wise correction. And I would think that given the huge over ownership of these stocks at this point of time which were all retail investor portfolios are full of these stocks, so we could see that happening over the next few months.
Would you be a buyer on FMCG and especially staples?
Yes, consumer stocks are under-owned at this point of time. They have not given any returns for the last four-five years, leave aside something like a Godrej Consumer or a Tata Consumer which have been outliers and some stocks like Titan and all which have their own dynamics.
But overall, I think on the FMCG staples side, there is opportunity because as volume growth comes back, we will see that they could start surprising on earnings over the next few quarters and once that happens, the stocks will also move. Because they are so under-owned, that is why as ownership increases we will see steady up moves.
So, these are stocks which will not give you 40-50% returns suddenly, but these are steady return stocks and at these levels of the market where valuations are not really cheap, they do offer a reasonable amount of comfort.
What is your view with respect to this entire conundrum that people are facing right now? Will there be a reset or course correction in NDA 3.0 or is it going to be just further push to what we have seen in the second regime?
It is very important to understand that when people talk of reforms, what reforms are they talking of? What exactly do they mean by reforms? So, many of these reforms which they talk of have no financial or economic implications. Most of the financial or economic reforms can be easily carried out with a simple majority and do not need any changes to the constitution.
So, I think this entire assertion about reforms being deferred, etc, is ridiculous. I do not believe that. And I think that the key is to see whether the entire investment cycle which has started on defence, railways, power, etc, continues, which it should, and what the government does to revive personal consumption which is the most important facet which is missing in the economic growth today.
