Let us start off with banks, seems like the FIIs are back and obviously, they pick up the private banks first.
Anshul Saigal: Yes, that is true. As we have seen, the largest private sector bank getting derated over the last three-four years and particularly in the last one year there has been a lot of anxiety about this bank because all other banks, private sector as also PSU have been rerated, but this bank was seriously derated in this phase.
And this has been the sort of darling of the FIIs over the years and clearly they were exiting out of this bank, which led to the fall in the bank.
Of course, there were fundamental reasons for that. But really, one of the reasons why this bank was doing so badly was FII disinterest. Now, in the last month, it has got a bit of its mojo back and clearly, that indicates that there is interest from FIIs into the country and the first bank to be bought by them is really this, as also the other private sector banks which have consolidated for the better part of the last three-four years in comparison to many of the PSU banks who have done very well. And so in valuation terms, they become quite attractive at this time as compared to where they were three-four years back. Some of these banks were trading at four-five times book and now are trading at two-and-a-half and lower. Even the largest bank is trading at 2.3 times book, around 12-13 times price to earnings, I do not remember the last time that happened. And clearly, the risk reward is favourable at this point because of that.
Just wanted to pick up on what happened in the broader market yesterday. Well, yes, private banks definitely held out, but there was some serious bout of profit taking in capital goods, in some of the consumption names, and in defence names as well. Do you think now for some of these sectors within the small and midcaps, we will see a continual profit taking perhaps or is that advisable really?
Anshul Saigal: Many of these stocks have rallied multi-fold. In capital goods, I know of companies that I hold, which are up like five-six times in the last one odd year. Now, to say that they still have a lot of steam left and most of the upsides are ahead of us, I do not think that would be a prudent way to approach this space.
Of course, in the odd case, it always makes sense to take some money off the table. While I am of the view that the next three-four years are going to be extremely strong for this space, if you speak with companies, you throw a dart, pick a company and they will tell you that we will double revenues in the next three-four years, that is the kind of tailwind we see in this space.
But clearly, much of that upside is already priced in into these stocks. What used to trade at 10 times price to earnings now trades at 35-40 times price to earnings and that tells you that the upside which is ahead of us mostly is priced in into stocks.
So, taking some money off the table is not a bad strategy at this time. Of course, I would not also recommend taking all moneys off because what kind of tailwinds in growth can happen over the next three-four years even these companies will not be able to gauge and as a result staying invested is also important, but it never hurts to take some money off the table.
In general, I would say that rather than worry about a day, three months, six months, take a long-term view and ride this rally.
What should one do now? It has just been such a great market.
Anshul Saigal: We are all very intelligent people and we try and impose our intelligence on the markets. Sometimes we forget that the markets are supreme and we should learn from the markets rather than putting our theories on the markets. I remember when I was a portfolio manager in the last year, at the beginning of the year you could have spoken to any fund manager and they were saying, stay away from smallcaps because they are expensive, go into largecaps because that is where you will find safety and from then to today smallcap index itself is up 70-80% and some of the smallcaps have given three, five, ten times returns.
So, it is a loser’s proposition to be imposing your theories on the markets. Never try and gauge where the direction of the market is going to be. Focus on the fundamentals, focus on the valuations. These are things which are in your control. Buy companies which are strong in their fundamentals. Buy companies which are reasonable in valuations.
And if you are smart, catch a rising tide in a sector. If you are smart enough to identify that tide, then there is so much money to be made in this market henceforth as well. However, there will be, of course, segments which will not do so well and if you are caught in those, you will start looking at others and getting envy that the others are making money and you are not. So, it is an interesting market. But having been a fund manager, I can tell you that this market is highly skewed in favour of the individual investor because he can be nimble and he can also look at concentrating bets into certain segments which will make money going forward.
This is the stock pickers market. A broad portfolio will probably cause you a bit of anxiety because it will probably not go anywhere. But individual pockets, individual stocks, lot of steam left. I think that there is a lot of money on the table still.
