Bad is getting worse but will it get terrible from here because there is no rule book which says markets cannot fall further because markets have fallen 30%. They can always fall more?
Yes, the rule book says that when things get bad, they get ugly but the Indian issue is that the optimism of the retail investor is still unwavering. The markets are not in a mood to capitulate when they can find a bottom. We are still getting public issues at a PE of 100 and above, people are still buying shares at PEs of 50 and above.
So, till the point of capitulation, one cannot say the market has bottomed out and that is far away from here today. Yes, we will see some very bad days in this quarter typically, April, May, June is a weak quarter for performance for financials and everybody.
So nothing tells us that after this result some significant positive will come in the market. Negatives could surprise us; things like a big announcement which we saw today in terms of an urban unemployment package scheme that could put a huge dent in the fiscal of this country, given the way the debt situation is.
So one has to be careful in what we are trading and as we discussed the last time, you do not have to buy every time.
Is this one of those markets where you need to just wait it out or start booking profits? Is this the fall which you are going to buy or think contra which is that in the last 10 years, inflation and margin pressures were not that . The regime has changed, it is time to get out wherever gains are?
No, I think the lesson out here is that you also need to book profit. People have been rewarded but how many of the people who have been rewarded, took the money off the table? If you look at the two-year returns on mutual fund, they are almost going negative at this point of time or perhaps after today will become negative.
Buying on a weak day or a weak market doesn’t necessarily lead to profit because one can have a cycle which goes up from being down. You do not sell so that depends on where you are. The banking index gives such fantastic returns. It is back to where it is. So it is not about market rewarding people who buy at the lows; market rewards people who actually also sell at highs at the end of the day, buying is simple. It is the selling which is more difficult. Today’s market tells us that one needs to look very carefully at a portfolio and have a very clear idea why you are holding these stocks.
It is not about optimism, it is about reality to say that some of the stock will be find very difficult to perform given the inflationary scenario, demand cut down and as we discuss a big urban policy if it comes through in the next couple of weeks, that could be a big game changer for the fiscal deficit of the markets. So this is a time when one needs to be sure the reason for keeping a stock. One shouldn’t say let me buy and just hold it. So sell what you are not convinced about, sell if you got good profits in consumer stocks. This is a time to book it and move it elsewhere because those stocks are not going anywhere in a hurry.
Most medium to long term investors have already bought at the 2020 lows. So technically speaking all of their portfolio is sitting at profits and not just consumer stocks. Where would you be wary about growth or the stock prices moving up higher from here outside the consumption stocks?
I am seeing a new trend coming up and I am sure regulatory authorities are looking at it. Company managements are coming and telling us that they have done the best ever but when the results come out, there is no best ever. We have a very large real estate company which said we have done the best-ever booking, best-ever sales, best-ever everything! When the result came out, the turnover was lower than last year’s in this quarter.
I think investors need to start getting wary of. We are seeing such a phenomenon at a housing development company, a bank, which is a stalwart. A huge amount of stuff are being told to investors which is not translating into reality. So I am just telling investors that they need to look at what the management is saying and take it with a pinch of salt because you want to be very careful if the managements are doing very hardcore pitching.
The second point is where do you park your money at the end of the day? I am still holding the view that high dividend paying stocks, the REITs the IndiGrid Trust kind of stocks are the best place to park your money because they are cash flow driven entities, they have no risk, they sell on cash and they take the money in. Yes, commodities have price risks but they have abundant liquidity, they have dividends coming through and they are monopolies. So compared to manufactured consumer products, I would really be on the side of the producer at the end of the day. Among sectors you want to avoid, there is cement sector where we are seeing competition coming and demand is not going to be so great. But one has an opportunity to go lower than the price at which the most successful industrial group in this country as far as equity investors are concerned is going in.
For example, I am not recommending it but you look at the dynamics. Adani companies have made the best money for investors through thick and thin for the last one and a half, two years. We are allowing an entry price to get in with them in a cement business which is below their entry price at the end of the day. Now one can take a call. The industry will have to take a beating. It is going to be bad for the industry but should you want to take a bet with the promoter? Maybe that is the way to look at investing your money.
At a personal and at portfolio level, how much cash are you currently sitting on because this does not seem like the 2020 kind of crash? It seems we are now headed for a slightly time-wise, elongated kind of a corrective phase?
The beauty of this market is one does not have to sit in cash. Now there are opportunities. I am not recommending but I am just giving you what my portfolio has. It has things like the IndiGrid Trust, Power Grid Trust, real estate REITs which are giving quarterly returns, the share prices are good, people are buying because the asset values are going up at the end of the day. One really does not need to be in cash at this point of time. You got to make every rupee of your work for you. India offers opportunity today which we did not have earlier.
So we have parked most of our cash in these kind of structured instruments at this point of time. Keep 10-15% of what you want to invest in the market in cash. If we need to invest in equity, we will move it out of these portfolios and bring it into the mainline equities.
So forget cash. Let the interest rate come to 8.5-9% in fixed deposits and you will find the reverse flow, you will find people going for FDs which is not a bad idea. Already FDs in NBFCs are at 11% or 10.5-11%. If banks go to 8.5-9%, that is a good place to park. One should have minimum 25-30% or maybe more 35-40% into that portfolio in cash or REITs or trust securities –because this market will give you lot of opportunities. April, May, June is a bad quarter so the results come out at the end of the day in July you will have a lot of opportunities to buy your favourite stocks.