Following the astounding opening (and subsequent suspension on hitting circuit) of the markets today, experts are now talking about which sectors and companies will lead the way ahead.
Madhu Kela, Head of Equity Investment of Reliance Mutual Fund, said,” The outperformance of the market will come from the midcap companies where ownership is negligible." He further said that the new highs can be expected from Nifty.
Madhu Kela, Head of Equity Investment of Reliance Mutual Fund, said,” The outperformance of the market will come from the midcap companies where ownership is negligible." He further said that the new highs can be expected from Nifty.
Q: Is there life beyond 4,200 or would you get cautious like some of our analysts here?
A: I am not cautious at all. I think the country is in an inflection point. I think lot of people will still worry about what happens to global sentiment and markets may have run-up too much. I think this has been an unprecedented verdict. This will give the Party the ability to act. I just fear that they should not be slower than what the market is expecting them to do. I am extremely confident that they will do it.
A: I am not cautious at all. I think the country is in an inflection point. I think lot of people will still worry about what happens to global sentiment and markets may have run-up too much. I think this has been an unprecedented verdict. This will give the Party the ability to act. I just fear that they should not be slower than what the market is expecting them to do. I am extremely confident that they will do it.
Q: Tell us the people who doubt the rally – why this verdict is equal to good news for the equity market?
A: The first thing is that as a portfolio manager what we have learned is whatever is outperforming the world will get towards that out performance. So, India is going to be one country which in the global world map is likely to outperform. I do not know what will happen in the next 2-5 days. This has been an investor’s delight who wanted to invest into India from a three-five year perspective.
Sometime back I had said USD 50 billion of flow over the next 12 months and these are not Foreign Institutional Investor (FII) flows. Now, whether it comes through External commercial borrowing (ECB), Foreign Currency Convertible Bond (FCCB), Foreign Direct Investment (FDI) there will be USD 50 billion of additional money and as a capital starved country that is what we need. I think once the money comes in then you will have lower interest rates then you will be able to build your infrastructure. So, the only thing the government should allow is a policy framework to attract this money and considering the crises which is going around in the world this is the best time for us to attract this capital.
Q: What about the cash people have been sitting on—not just mutual funds. You talk to a lot of hedge funds, FIIs, High Networth Individuals (HNI), do you think now they will just throw in the towel and come in. I mean, lot of people were holding out at 3,100 at 3,700. Now do you think it will be forced to enter the market?
A: The best comment which I heard on your channel, “The Left is out and people are left out.” I think our job and our business is such that people might be in a denial for sometime, the markets have run-up too much, 2,600 Nifty is already at 4,000-4,100, You will be out of job if you don’t deploy. The market could go to 20% and if you continue to remain in cash you will be out of your job. The bigger concern is from the hedge fund side, people who are running 10-20-30% net long and people who have left India. If there is a particular hedge fund which is 50% net long India and there is another hedge fund which is only 10% net long India, he will have no choice but to come and invest.
A: The best comment which I heard on your channel, “The Left is out and people are left out.” I think our job and our business is such that people might be in a denial for sometime, the markets have run-up too much, 2,600 Nifty is already at 4,000-4,100, You will be out of job if you don’t deploy. The market could go to 20% and if you continue to remain in cash you will be out of your job. The bigger concern is from the hedge fund side, people who are running 10-20-30% net long and people who have left India. If there is a particular hedge fund which is 50% net long India and there is another hedge fund which is only 10% net long India, he will have no choice but to come and invest.
Q: Will you buy if the level is between 4,200 to 4,500?
A: We have not changed our portfolio; we have not changed our style. In lot of these funds, we are 80-90% invested and I think now is our turn. You will see midcaps flying, now you will see stock idea flying, I am sure we will be able to catch at least a lot of them because of our view that from this inflection point even if I buy 10-30% higher it doest matter because now we are playing as an investor’s delight.
Q: A lot of people will now think that because FII money will chase performance and you will see the largecaps outperforming. But for a portfolio manager like you looking for out performance, do you think there is better value in the broader market now and you could generate performance by buying those stocks which are still trading at 25% of their peak value?
A: Whichever portfolio manager has gone into caution and I think to lot of them, they have reduced the number of stocks. What people have ended selling up, is smallcap and midcap names because everyone was cautious and in these stocks the float is very limited. So that is where I think the maximum outperformance is going to come from. It may not be the top 50 companies but a company below that, the next 100 companies where the size is large and the ownership is
A: Whichever portfolio manager has gone into caution and I think to lot of them, they have reduced the number of stocks. What people have ended selling up, is smallcap and midcap names because everyone was cautious and in these stocks the float is very limited. So that is where I think the maximum outperformance is going to come from. It may not be the top 50 companies but a company below that, the next 100 companies where the size is large and the ownership is
negligible.
Q: The thing that this coming back too though is the argument about what this past 50-60% on the market looks like. Does it look like the most resounding bear market rally we have ever seen or have we indeed put the worst behind us and begun a new cycle which most people are circumspect to admit to or to agree to. Where do you stand on that?
A: Let’s go back to the bull run which have happened in the world. For example, Japanese bull run; between 1973-74 Japanese market corrected by 50% and people thought that the bull run is over and after that the index went up ten fold. I see that is the kind of opportunity which we have for India that there us so much chaos which is going around in the world and here is one country where we have stable government for the next five years and they are committed to providing proper governance. Obviously, we have seen that in the last five years. So what kind of money could you attract and as I keep saying, if we get capital then our job is done.
It’s going to take sometime for people to digest whether after such a big rise should we be participating or not. But I think it’s a matter of time before people will aggressively participate.
Let me make one very important point that all the people are only talking about the cash which the portfolio managers are holding. What about the cash which Indian public are holding? For last 18 months we have not seen any inflow from Indian public and we have seen USD 300 billion of saving in last one year. What happens to that cash?
Now we are at 4,000 level, market is up 50-60%, we did not get a chance to get out, this is our opportunity, golden chance, let’s get out. I think some retail investors could commit that mistake. In fact this is an opportunity and I am not saying the market is going to go in a perpendicular manner; you may have some disappointment coming from global cues at some point of time but every dip is an opportunity to buy from a retail investor point of view.
A: Let’s go back to the bull run which have happened in the world. For example, Japanese bull run; between 1973-74 Japanese market corrected by 50% and people thought that the bull run is over and after that the index went up ten fold. I see that is the kind of opportunity which we have for India that there us so much chaos which is going around in the world and here is one country where we have stable government for the next five years and they are committed to providing proper governance. Obviously, we have seen that in the last five years. So what kind of money could you attract and as I keep saying, if we get capital then our job is done.
It’s going to take sometime for people to digest whether after such a big rise should we be participating or not. But I think it’s a matter of time before people will aggressively participate.
Let me make one very important point that all the people are only talking about the cash which the portfolio managers are holding. What about the cash which Indian public are holding? For last 18 months we have not seen any inflow from Indian public and we have seen USD 300 billion of saving in last one year. What happens to that cash?
Now we are at 4,000 level, market is up 50-60%, we did not get a chance to get out, this is our opportunity, golden chance, let’s get out. I think some retail investors could commit that mistake. In fact this is an opportunity and I am not saying the market is going to go in a perpendicular manner; you may have some disappointment coming from global cues at some point of time but every dip is an opportunity to buy from a retail investor point of view.
Q: What themes would you like to back now from here? Would you back banking as the likely recipient of most reform from the government? Would you back infrastructure, would you back Public Sector Undertaking (PSU) candidates for divestment. If you wanted to play this government formation and the Budget what would you best bets be?
A: I think I am going to back entrepreneurship all over again. So you have to back bottom up companies where there is an extremely aggressive, smart entrepreneur who wants to grow. Capital availability for that percent during last 12-24 months; capital will become available for him. So that is theme number one that you can really catch a proper entrepreneur. The other point is there is going to be lot of performance difference between intra-sectors.
If I am right that USD 50 billion comes into this country in the next 12-18 months then you are seeing at least 15% appreciation in the rupee. So there are a lot of sectors which are going to get hurt because of that. So you will have differentiated performance. The domestic sector and the things which have linked to investment and domestic consumption and infrastructure will all over again do very well while things which are linked to international and rupee appreciation will not do as well or will do badly rather. It will make you to the market. So we would like to position ourselves into great entrepreneurs in these sectors which are likely to link to India.
A: I think I am going to back entrepreneurship all over again. So you have to back bottom up companies where there is an extremely aggressive, smart entrepreneur who wants to grow. Capital availability for that percent during last 12-24 months; capital will become available for him. So that is theme number one that you can really catch a proper entrepreneur. The other point is there is going to be lot of performance difference between intra-sectors.
If I am right that USD 50 billion comes into this country in the next 12-18 months then you are seeing at least 15% appreciation in the rupee. So there are a lot of sectors which are going to get hurt because of that. So you will have differentiated performance. The domestic sector and the things which have linked to investment and domestic consumption and infrastructure will all over again do very well while things which are linked to international and rupee appreciation will not do as well or will do badly rather. It will make you to the market. So we would like to position ourselves into great entrepreneurs in these sectors which are likely to link to India.
Q: There are still concerns about the earnings. As an event would you say this is an event which is reprised equity upwards or are we stretching the argument there?
A: Earnings will follow. Last two weeks two real estate companies which are suppose to be in the darkest of the time are getting money. So earnings will follow, once people get money, once people are able to invest, earning will follow. We saw that in 2004, a lot of the capital goods companies are trading at 20-30-40 price-earnings (PE) multiple but as the money started to come in and as they started to invest earnings followed one-three years down the line.
So what people were focusing till now including me is what is going to happen next month or next three months. I think that trajectory is going to change and people are going to focus on what is going to happen after next one year and three years and that is where you see a lot of difference. You will see people who are skeptic about earnings and immediate earnings that will vain away as a matter of time.
A: Earnings will follow. Last two weeks two real estate companies which are suppose to be in the darkest of the time are getting money. So earnings will follow, once people get money, once people are able to invest, earning will follow. We saw that in 2004, a lot of the capital goods companies are trading at 20-30-40 price-earnings (PE) multiple but as the money started to come in and as they started to invest earnings followed one-three years down the line.
So what people were focusing till now including me is what is going to happen next month or next three months. I think that trajectory is going to change and people are going to focus on what is going to happen after next one year and three years and that is where you see a lot of difference. You will see people who are skeptic about earnings and immediate earnings that will vain away as a matter of time.
Q: Last 6-12 months, a lot of stocks had got derated because of the quality of their balance sheets, they were overleveraged and access to capital was a question. You are speaking about USD 50 billion of global money flow into India. Do you think those stocks could get rerated now?
A: Yes. Last time I had said that the corporate governance is only talked or practiced in the bear market. In bull market, people want to focus on performance and momentum. For a lot of these companies which did not get capital in that bear market, we will end up getting capital. However, I would like to put a word of caution there is still a lot of good quality which is available. So we would definitely like to invest in that good quality which is backed by strong entrepreneurship.
A: Yes. Last time I had said that the corporate governance is only talked or practiced in the bear market. In bull market, people want to focus on performance and momentum. For a lot of these companies which did not get capital in that bear market, we will end up getting capital. However, I would like to put a word of caution there is still a lot of good quality which is available. So we would definitely like to invest in that good quality which is backed by strong entrepreneurship.
Q: The circuit halted at 13,500. Lot of people year end target is 15,000 on the Sensex. Give me your range for the market?
A: I may sound over jubilant. I do not have a timeframe but my target is a new high in Nifty whether it happens in 12-24 months, I do not care. I think all these targets will get revised upwards.
A: I may sound over jubilant. I do not have a timeframe but my target is a new high in Nifty whether it happens in 12-24 months, I do not care. I think all these targets will get revised upwards.
Q: You think sub-10,000 levels in the Sensex are history. We won’t go back to those kind of levels, we will form a bottom above that?
A: As a matter of caution I may want to put out that there are only two things which can change that. One is, there is another catastrophe in the world in which case obviously we are going to be part of it. Second, the government reaction to reform and progress is far slower than what the world is expecting.
A: As a matter of caution I may want to put out that there are only two things which can change that. One is, there is another catastrophe in the world in which case obviously we are going to be part of it. Second, the government reaction to reform and progress is far slower than what the world is expecting.
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