[ad_1]
What is happening to the markets? We reached fresh high levels and then this sudden bout of profit booking comes in. Do you think we are close to the top for the year or at least for the first half of the year?
Ajay Bagga: Difficult to say that. But I think the big trend is that foreign investors have been selling as a cohort. Within that, there are different types of investors, of course. But FII selling is one characteristic of this market.
Unlock Leadership Excellence with a Range of CXO Courses
Offering College | Course | Website |
---|---|---|
Indian School of Business | ISB Chief Digital Officer | Visit |
Indian School of Business | ISB Chief Technology Officer | Visit |
IIM Lucknow | IIML Chief Operations Officer Programme | Visit |
Second, emerging markets have been hit by the Chinese market underperformance. So, as the Chinese market hopefully bottoms out and more flows start bending their way towards the emerging markets, we will also see a reversal of this trade, so that is the first thing. Second is that our valuations were never cheap. Valuations are still a bit on the higher side and so despite getting a bigger share in the global indices, we are not getting that kind of inflows yet because there is a wait and watch with the foreign investors.
Third is the big event coming up, the national elections. Of course, the market consensus is political stability, political continuity, but still there is a segment of investors who would like to wait and watch, so that is the big theme, from 30,000 feet and more granular.
Banks have underperformed and they are a big chunk of our market, that has led to some underperformance and IT, IT still has a question mark and that is the second biggest segment so that is hurting our markets upward journey, but I do not think we have reached the top for this year. We will see better levels again in this market. It is more a consolidation phase that we are going through.
Are you in that camp who would like to participate more wholeheartedly at lower levels and wait it out a bit for froth to get clean a little bit? Are you also from that camp?
Ajay Bagga: No, I am fully invested because you cannot ever time it to the T. So, I would say that it is foolhardy waiting for that froth to clear and all those things because you have a structural story going for India. You have an India macro which is booming and which will continue to do very well. So, this is the time to put money into India. But the foreign investors are of different segments and they have different issues on their portfolios which are leading to some outflows. The good news is that the domestics have stepped up and as Uday Kotak had said once that we are a nation of savers and not investors. Now, he has changed to saying that savers are getting converted into investors and that is your SIPs, insurance flows, provident fund and pension flows which are a huge conglomeration of domestic money which is holding up these markets and that will allow this market to be very little dependent on the foreign flows.That is the big change that is coming over the next three years where domestic institutions will own a broader segment, a broader proportion of the market and the FII outflows will not have that big an influence on the market.One of the under-owned spaces of the market which in the last six-eight months started doing very well is pharma and understandably so. Is it prudent to take some money off here because another section of the market says if you do not book profit now and the market starts believing that Trump coming back with Make in America ideas, the pharma exporters could get it on the chin. So, would you book profit on that point or not?
Ajay Bagga: There is always noise in the election year on the pharma costs and if you look at the medical costs of the US as a nation at about $850 billion, it is the highest in the world. England’s hospitalisation might be more expensive or European hospitalisation but they have a very strong welfare state where everybody gets covered. But big pharma is a big lobby and it is a juicy lobby to attack for all politicians. But on the ground, very little gets done.
So, I do not see a very big threat from that. But yes, sentiment will definitely get impacted over the next six months as the US elections roll out and there will be a lot of talk about this. In fact, big pharma is challenging the prescription of generics by US doctors, so a lot of suits are on that as well, which directly impacts our generic players. But it is a vast market and the good news is that over the last three-four years, the US revenues got so depressed and the margins have got so compressed that the pharma generic players started looking quite attractive.
So, it is a fundamental shift after a lot of time that the pharma players are getting back. There will be the FDA focus. They do not like the fact that India has so many pharma alternatives available at a much cheaper cost. Unfortunately, Indian companies do not invest in the compliances. If you read the 483s, you will be aghast that data has been changed and now there is so much software available which can track the archives down to the beginning of that data and still I was reading a recent 483, it said that microbiological precautions were not taken.
You are making medicines, for God’s sake and you are risking contamination! That may work in third world countries, but it will not work in an American milieu. That is the only downside and you do not know when the next 483 will hit you, that is why this will not grow into a very big segment because of the hanging sword of compliance.
What about Zee Entertainment? Paytm was not a similar story but that stock had also seen quite a bit of drubbing, but at some level, buying emerged and if you look at the last four or five trading sessions, that stock has been locked on upper circuit consistently with 100% delivery thereabouts. What is your view on Paytm, Zee Entertainment, these volatile names?
Ajay Bagga: When you have a fantastic market like India with so many growth stories and good clean stories, I would say avoid the compliance stories and wherever there is a whiff of any governance issue, it might not be worthwhile.
On Paytm, there are much more buyers than there are sellers. That is a reality and I cannot explain that reality. I do not talk about individual stocks. I would not say whether to buy or sell but clearly wherever there is a compliance whiff also I think you are best served by sticking to the straight and narrow. If you want to take that kind of risk on smallcaps that is okay, on a 30-stock portfolio you say okay 2% or 5% I will risk on a couple of smallcap stocks but in a centre of plate or large companies to see governance issues or compliance issues, that becomes a very big red flag and especially in India. When you have so many alternatives, why go down that route? Let the penny pickers stand before the oncoming trains and try to pick up the pennies, you should not join them.
(You can now subscribe to our ETMarkets WhatsApp channel)
[ad_2]
Source link