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Sandeep Raina, executive vice president – research, Nuvama Professional Clients Group, says he is not worried much about the market crash on Wednesday. A lot of people have made a lot of money in the market and something which has gone from one to five is back to four or maybe three-and-a-half. It is not something to be worried about because one, a lot of participants had already expected these kinds of things to happen.

Raina says: “I am not worried. Is it the bottom? I do not know frankly. Can there be further small cuts in the market? Possibly yes. But is it a case of there is nothing but a bloodbath going forward and we should sell the equities? Not at all. Just stay calm, stay invested. The market will revive very soon. That is broadly my take on the market.”

You have been around long enough to see many cracks and drawdowns like these. You deal with some of the best and the brightest minds in the market. What is the sense you are getting reading the data and talking in your circle of the kind of drawdown which you are seeing now? A large part of the market was expecting it already, wasn’t it?
Sandeep Raina: What I can say is this was very much expected. It is just that people did not know that it would happen in March. People were expecting this kind of market positioning from January onwards. It is just that it happened in March. I do not know if you remember exactly one year back in January and February when we had similar kinds of markets and nobody expected that in March 2023 we will make the bottom and actually we did.

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After that, the market has done very well. If I talk about Nifty, it is up 25% from that low. The midcap index is up almost 50%. The smallcap index is up almost 60-65%. Last year, a lot of people made money and in SMEs, there is no index that we can track but we have seen so many companies tripling or quadrupling post the IPO also.

A lot of people have made a lot of money in the market and I am not too worried because something which has gone from one to five is back to four or maybe three-and-a-half. It is not something to be worried about because one, the biggest point is it was expected. So, a lot of participants had expected these kinds of things would happen. Now, going forward, what is the expectation? Am I worried? I am not worried. Is it the bottom? I do not know frankly. Can there be further small cuts in the market? Possibly yes. But is it a case of there is nothing but a bloodbath going forward and we should sell the equities? Not at all. Just stay calm, stay invested. The market will revive very soon. That is broadly my take on the market.

How big a worry is the deliberate attempt of the regulator to regulate the flows by MFs to smallcap, microcaps? Lump sums will not go to smallcaps and microcaps, only SIPs will continue. Can these stocks get into a sideways grinding move for a very prolonged period of time, say 6 months, 12 months?
Sandeep Raina: It depends till what time they want to do this and hypothetically, this trend continues for six months. Possibly there can be a sideways movement or some correction in midcaps. But here again, the question comes to quality midcaps, quality smallcaps, quality largecaps and that is what we have to always talk about. If the companies are growing at 20 odd percent irrespective of what is happening in the market and giving good ROCE of about 20 odd percent, doing good cash flows, I do not think we should be worried.

It can happen that maybe my stock will not perform for a good six months, but it will come back for sure. Right now, these markets are very good for doing good quality research because when the market is in an upswing and analysts like us. When you write the report and the stock is up 30% in just one month, the margin of safety comes down but these are the markets when actually you get lot of time to do a lot of good research and invest in good stocks and then you get time also to actually do more investing in those kind of stocks. So, it is how you think this market would be and accordingly you have to play your cards.

One can never say that when the market will rise but one can act looking at the valuations in individual names also. Talk to us about pharma index. You like pharma. You see a big turnout happen. What kind of pharma names are you researching closely and you like them and why?
Sandeep Raina: Pharma as an index has not done much. We saw the great rally happen in all the capex stocks be it railways, be it defence or capital goods. There are stocks which have gone up 3x and 4x and rightly so because a lot of things are happening on the government side. With the kind of investment the government is talking about, I would not be surprised and there would be trillion dollars investment over a period of five-six years from the government side. If that kind of investment happens, India will be a different thing altogether.

But coming to your question on pharma, we are liking it. In any sector – be it pharma, be it niche small cap companies like Beta Drugs or maybe a Kilpest – which are looking very interesting to us. Of course, companies like Sun Pharma are also very interesting because of the kind of change they have seen in the last four-five years. It has been doing well for the last one year. We will see those kinds of changes in the pharma sector. Again, logic remains the same; look for companies which are doing better than the industry, throwing a lot of cash and creating moats. Simply follow that, and you will make money in all the cycles. There would be a delay of three-four months and there can be some not so good market for a few months but that is about it. Ultimately, it comes back and you make a lot of money in terms of returns.What are your top bets as far as the real estate space is concerned? You say that the sector is just waking up after slump of eight years.?
Sandeep Raina: I am more on the positive side. I am not of the view that the tapering off will happen because we have to understand this sector has actually come out after eight years of not doing so good. There were a few companies which were doing good or better in that time but overall, one thing is very clear and it is not rocket science. Everyone knows about it. Post Covid, there is a lot of change in the human mindset; people are going for bigger and better houses; people are going for refurbishments of their old houses. These things are happening and it is good for the industry.

There is nothing that we dislike in the real estate sector. It is just that it has done well and they will continue to do well because there are a lot of people wanting to buy actual houses and the good part is that the affordability has improved significantly in the last two years and that is a very important thing to understand and that is a very important lever for us. For this market to do well. I will give you one more data point. In the last one year or one-and-a-half years, interest rates have gone up. There is not an iota of decline in demand for real estate that tells us how resilient that demand is right now and going forward, it should just be maintained. That is why we like these companies and overall real estate.

What is your take on some of the high quality PSUs? I am talking about some of the metal and mining PSUs, even some of the energy and power or even oil and gas. They may have gone up quite sharply in the last few years but the fundamentals have also changed. Structurally they are more efficient companies. If any of these top PSUs are available 30-40% lower, would you be comfortable getting back into them?
Sandeep Raina: I will be 100% more comfortable buying those. The kind of investment the government is talking about and also these players have become more efficient, like we were talking about BHEL and all that, they were available to us at Rs 50-60, look at the kind of growth they have done and it is pure-pure hardcore fundamentals of the sector and the company that has changed.

Similarly, SBI was a reasonably good bank but it has also improved and there are so many subsidiaries of SBI which have a lot of value. There are many PSUs which are looking interesting like NTPC, now NTPC was also talking about going green because they will have a big arm which will be into renewables. Defence PSUs will do far better. They have already done well, the kind of investment the government is talking about in railways, in defence it will be phenomenal and that is what we have to invest in. Of course, the gestation period will be longer because they have already done very well but we will still make a lot of money from here. So, I am saying that we have to buy good PSUs.

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