We have seen some amount of cool off in some of the pockets like IT and auto. Do you see this as a little bit of a realignment? Are you anticipating the trend to continue this week?
I wish there was an easy answer to these questions. If at all we have to take a short term call on the market, we need to look at some of the factors that are on the horizon.
One, this is an expiry week. The market expiry is coming on Thursday and traditionally it is associated with volatility. Two, the result season is largely over and to that extent, news flow from the result season is not there anymore. The news flow that will continue is the price movements of commodities like oil and copper. Of course, there is Covid resurgence and so these are the immediate short-term factors that are there.
Now put these together with the fact that the market had been going up almost one way except for the last three-four trading sessions as you have rightly said. It is likely that we can continue to see a range-bound movement this week ahead of expiry and post that, next month we will see if the market takes any direction on the upside or on the downside. FII inflows have been reducing of late, though they continue to be net positive. In the short-term, we could continue to see a consolidation in the market in the current week.
How are you placed on SBI?
A lot of things are happening in the overall public sector space after some four, five, six, seven years of consistent underperformance in specifically public sector banking space. This started sometimes in October-November first with the DIPAM secretary making a statement that they will be adding new criterias in the public sector valuation, of which market cap was one that got followed by a little bit of results which were improving.
Also, in the rising market, valuations of all other sectors and stocks, especially from the private sector, kept rising. So, sanity check had to come in terms of finding good opportunities as a combination of fundamentals and valuations and that was followed up by various announcements on the public sector in the Budget — be it privatisation, be it further allocation for putting money in the public sector banks and things like that.
In the background, there was the consolidation of some of the public sector banks and finally SBI reported very good quarterly numbers for December. In fact, on some of the parameters, SBI has reported much better results than its private sector counterparts which are considered benchmarks. All these things have resulted in the share price continuously going up one way.
Recently, we saw a correction in line with the market because stocks like SBI participates with the market both on the upside and downside. If we see the market continuing to be range-bound, we will see the same kind of price movement with SBI as well and post that, in whichever direction, the market direction goes, over a period of time, SBI valuation and fundamentals can combine to turn it into an outperformer over the market, possibly over the sector and possibly for sometime over its private sector counterparts also.
What is your view when it comes to Jubilant Foods?
The runup has never been a factor to look at in the current market or for quite a number of years even in Indian market. We have been seeing that all the quality stocks are continuously being rewarded by the market, irrespective of valuations. We have a situation wherein economic recovery is happening and money is flowing into the Indian equity market, not only from global investors but from domestic investors.
Obviously with every passing time, that money is continuing to look for quality stocks, not wanting to compromise on that, especially with the kind of events that we had in corporate India in the last three or four years starting with IL&FS and then moving on to multiple things. In the current market scenario, one should not look at the sharp price rise that has happened. One should not look at the valuations.
As a result, my view will continue to remain positive. The company has been doing all the right things that it needs to do in terms of expanding its business, product specific space, product distribution and things like that. The view continues to remain positive.
What do you like among PSUs? Would you still wait for the first successful divestment or privatisation to take place and then take a call?
There is always a tussle between the heart and mind. Heart wants some things to happen but the mind knows whether there is actually a possibility or not and how much time it will take. The same seems to be the case with PSU divestment, the classic example being BPCL. Of course, we got into a pandemic but even before that, the government has been trying. Initially, there was not much success. Hopefully, it should happen this time. So coming to your question, in terms of investment strategy, there are two ways. a) One buys into a little bit of uncertainty and if events pan out as expected, the gains will be much larger; or b) if we wait for privatisation to happen and then we buy, then the gains will be lesser.
This time, the government seems really sincere and the way it has continuously been followed upon, I would be happy to take a bet ahead of the actual event. I would be too happy to take a bet on the public sector right now — partly in terms of expectation of privatisation of some the organisations that have been announced by the government and also partly in general due to overall interest coming back in the public sector space. So, I would be willing to take a bet ahead of the actual event.
How are you looking at the overall capex revival theme? Are there any particular sectors or companies that you like?
Capex revival indeed has been happening and it is visible all around us, supported by the continuous thrust on the government through its various policies. Plans are afoot to execute these policies in a time-bound manner. That is the biggest change that we are seeing and we are indeed benefiting from a lot of them. So, these are not necessarily direct plays but a company like Gujarat Gas is one of my picks whose volumes are likely to continue to go up because of the continuous capex in and around its customer areas of Morbi and Gujarat and the kind of production volume growth that the client companies have targeted.
The stock has been going up in line with the market but its financial valuation, compared to peers is relatively attractive. These are some of the opportunities that I would still be willing to buy in the market.It is not necessarily linked to capex directly but given the revival in auto sector,
is another stock I like, preferably on correction. Even if the stock does not correct, given the way the growth is expected to continue, it looks good to me for investment.