market rally: the next two quarters will be difficult, then they will transform a market of stock pickers: Dinshaw Irani
How can someone manage a portfolio when you’re underweight banks? You own, you own and you bought. Am I right?
Yes, you’re right. In fact, finance is a sector that you cannot avoid in this market. We had the chaat, the laddus are on their way now.
What to do now that global markets have made a convincing comeback? The strength of the rupee is evident and the more stability emerges globally, the more India will pull in a direction things will change in our favour?
Our conclusion has always been that for India to outperform, global markets need to stabilize. I think that’s what happened and frankly, if you have a market of this size – India being the fifth largest economy today and probably the third before the end of this decade – cannot be ignored, especially at the rate it is growing. Our call is that India’s GDP will grow the fastest in the world in a market of this size over the next four or five years. This market cannot be ignored by global investors and I believe India has secured its place in history in the future.
Second, look at the inner flows. Today SIPs are at $1.6 billion per month and if you look at the other sticky flows that are NPS, EPFOs and ULIPs, we are talking about a $3 billion flow every month coming into the equity markets, which is undeniably a huge amount. In this way, the absorption can be quite good.
In fact, I remember earlier you asked me if we should compare the rally in our stock markets with a train journey from Churchgate to Borivilli where we are today and I said Marine Lines. I correct myself, I think the train has just left the station.
“ Back to recommendation stories
You really have to enjoy the ride with a paid ticket which is the price of a fund manager like you. What’s the best way to max out now? Should there be a minimum time frame of 3-5 years and do you think stocks at these levels when markets are at an all-time high, can still yield 10-12% return over the next three years? A senior FD gives a return of 9%. Why would anyone come to stocks if the projected returns are 12-13%?
If you were to pull up the GDP growth that we project, markets are normally a slave to growth. It could be another name for GDP and the index normally plays on GDP growth, because that’s what earnings growth will be, because the index is a representation of GDP.
Frankly, the stocks that represent the index may be better than what India Inc looks at as a whole. If you’re talking about real GDP growth of 6.5%, you’re talking about nominal growth of 10-10.5%; add another 2-3% more growth these stocks will get – 13% is what we think is standard growth going forward.
Frankly, the market has already reached a new high. I don’t think this is a high that will stick around for long. We will break that peak again in the future, but the reality is that the next two quarters are going to be tough and that’s when we think it’s a stock picker’s market that will play out over for the next two quarters.
The base case is that the United States will start to look up again from June and that is frankly tied to the fact that our elections are also approaching in April, May next year and normally nine months earlier than the campaign rally does not begin. So these two quarters are the ones that will provide an opportunity to enter and that’s what we tell our investors – don’t enter on a lump sum basis, stagger your investment on an STP or SIP and that’s how we play this release.
As the markets approach near record lows, are you tempted to add positions or perhaps cut some positions somewhere?
We continue to do this regularly in our portfolio. We are not waiting for the market to reach a new high to call stocks, we continue to do so regularly. We may have sold stocks that were probably at the bottom of the market, if at all, and so it doesn’t work for us. We are taking a very considered bet in the longer term and that is why these movements do not disturb us at this point.
In fact, when the markets are also down, we are looking for buying opportunities, so it comes with conviction and that conviction basically comes from the fact that you are looking at growth. Normally we identify stocks that have five, six years of a growth track. For us, the long term does not mean that we buy and forget. We look at them in the short term and that’s how those short terms add up to a long term. So it’s a constant process of evaluation that we undertake and that’s how if we’re confident about the stock, it stays with us.
entered the green today. Since the start of the year, it’s not been a good performance at all and it’s down more than 60%. That said, there was a one-time stock write-off and it was punished. Will you continue to hold this position?
It is frankly a disappointment. We weren’t expecting this one that happened as it was a huge sum. We’re back to the drawing board on this one. We rate this stock, but frankly, these are the opportunities if you are sold on these stocks. We await further contact with management to understand what really happened, where they went wrong even though the conference call was there, but we need more clarity on this stock.