Is the price action in banks a function of what we heard from RBI on Friday?
Yes, in a way you are right. There is caution in the air as far as the banking space is concerned. But nevertheless one should mention here that the first quarter result of most banks has been a positive surprise simply because of two things. One, the moratorium given by the RBI has not been used to the fullest extent by the bank customers. So that tells you there is a great deal of cash liquidity available with many of the clients of the banks.
Two, even in this situation or low GDP growth, the banks are able to push through credit and are able to post profits, thereby upping their net worth. So these two points are more important. But yes, you are right. The caution by the RBI is in the air and that is why the bank stocks have corrected.
Are there any ancillary trends to the economic activity picking up; be it paints, cement which you think are investment worthy?
The discretionary spend is what is going to rise up. There will be an upgrade that will happen in the way people will start spending and therefore consumer discretionary is the space to watch out for. We already know the rural economy thanks to buoyant agricultural activities is doing really well and that helps drive demand for consumer durables. Hence, we would be looking at the discretionary space. So within the consumer discretionary space, the spectrum is large. It starts from something like automobiles to home appliances to even things like apparel and clothing.
Now in this respect, I would reckon that the automobile space, particularly two wheelers space will do better. Home appliances will continue to do well and we will potentially see pent-up demand in things like room air conditioners to TV sets to host other appliances. Come the festival season we will see discretionary spends going up. Consumer durables therefore would be the ones to watch out for.
Let us get your take on some of the IT names. What kind of preference or weightage would you really give some of these IT counters at this point of time?
If you recall, when the Covid phenomenon began in March, we were the ones who were saying that the IT company or IT sector as a whole will continue to do well. That particular prediction has somehow come through and that is simply because IT companies are first and foremost accustomed to work from home kind of an environment.
Two, there is an unabated activity happening on the deal side. Many of the IT companies constantly work towards engaging more and more clients both horizontally as well as vertically. Therefore, large deal winds are coming to the kitty of most of the IT companies. That is what is driving up many of the IT companies apart from the defensive strategies that most people would have applied by pushing their portfolio into the IT stock.
So right now, I would say the outlook for IT companies is strengthening because there is a lot of background work on deal activity that has happened and which will come to the surface once we get further into the fiscal year. Most of the IT companies have also demonstrated that they are able to up their margins in this period of lockdown. So a healthy set of financial numbers are getting posted. I would not be surprised if IT companies further get re-rated upwards.
Every large institutional investor who comes on our channel or various forums is always flagging off the fact that retail investors are there. You should avoid the market. There is momentum and there is this FOMO effect which has kicked in. Would you buy this argument?
In a way, the marketâs perception about retail investors actually entering the market and taking it higher to a level where it is the right time to sell has been simply because retail investors have largely been interested in smallcap and midcap names in equities. But that is not the case in the current environment where you have these Robinhood investors. The Robinhood investors are taking equal interest in even largecap names and investing in the broader set of stocks and therefore this effect or this perception about retail investors being taking the market to a level which is unsustainably high does not hold true any longer; at least in this environment.
They are not into smallcap or midcap stocks. They are into the largecap stocks and therefore I would reckon that most of these retail investors are becoming a lot more savvier. They have a large amount of research advice backing them up and that research advice is coming in through a lot of platforms that you just talked about. So research is tailor made and available at your fingertips and good quality research is available even to the retail investors. No longer it is the case that institutional investors would have quality research behind them backing their ideas and backing their stock buys.
Retail investors also have quality advice and I would reckon that this phenomenon of the market going up with higher retail participation will continue for some more time because they are also getting invested into the largecap names. So yes, to some extent, I agree with what you are trying to say. But the bad picture that gets painted when retail investors enter the market is no longer true.