What describes the market best according to you, desperation or realisation?
If you are already invested, then it is realisation. If you had got out in August, September or even in November — like a lot of HNIs did — then it is FOMO, it is desperation. But what is very clear is a few days in the market give most of the returns and this week has been those kind of days.
Does the market now run away from here? I do not think so. I do not have the confidence any more to keep saying that the valuations are stretched or these kinds of flows do not continue. For a week when the flows reversed, we saw the kind of falls that happened in the markets. So, some time that will happen but right now along with Korea, India is looking like a very top-down attractive market. The budget is out the way. There are no negatives in the budget. What has happened is largely the off balance sheet items have come in and so it is not really that big a fiscal slippage also. It was already getting counted by the rating agencies and the sell sides when they were doing the entire cash flow of the country. They were counting the FCIs and the other offshore items. So it has merely come on the balance sheet with no negatives and an increase in the capex that has been welcomed by the market.
Along with that, there is the looming US stimulus. The Democrats are showing a lot of resolve and that will lend it a further leg up. Dollar strength is worrisome. It is negatively correlated to most emerging markets but we are hoping that with the new stimulus coming through, there will be a further crack in the dollar and it continues on a weakening trajectory and that should be helpful to emerging markets and to India.
The best strategy in this market would have been to just continue being invested through the rollercoaster and one would have made some good money. The lucky guys were the ones who got in March and April. Most of the market sat out large portions of this rally. Will a FOMO happen now? I do not think in a rush because there is a pause on the valuation side, but India is in a sweet spot and more money should continue to keep coming into India.
If the economy indeed is on a turn, is it time now to go down to a Canara Bank, a PNB, an SBI, RBL and IndusInd Bank?
I would add ICICI Bank and Axis Bank to that. Also, some amount of catchup will come through. I totally agree with you. PSU banks and the private sector banks which were hit by NPAs would be your call now. Also it is noteworthy that of the October-December FII flows, 35-38% were concentrated in financials and I would believe that a lot of even the January flows would have gone into that.
As the economy recovers, there is a very strong correlation with the financials. Despite the fear of NPA surge, the good managements have been very transparent. There are enough financials which you should be owning at this point in time.
What has been your last big acquisition? How are you repositioning your portfolio because six months ago it was only digital, digital and digital?
Digital continues to do well. Look at the numbers Google and Amazon have unleashed. Even Apple growth has been extremely heartwarming. I remember one interview you had done with Howard Marks about two years back and he had said that since â97 he was calling the dotcom valuation and it took about three, three-and-a-half years. So cycles will eventually turn but liquidity extends it. This time around, about a year back, Howard Marks said he was uncomfortable . I would say maybe we have got a year more where all these beneficiaries of the pandemic and everything with digital in it will continue to do well.
Recently, two data services companies got bid for $ 28 billion and $ 31 billion each. The revenues are like $ 500 million a quarter. There is 100 times, 200 times sales, there are no profits as such right now to talk about. SPSEs have become such a thing that anybody and everybody that I know in investment banking is trying to jump in. Big bankers are giving them the anchor money. There is so much money right now chasing those assets. Will it turn? Yes definitely, but right now you have to just enjoy the ride.
So what have I been buying? I went into industrials. Sometime in November, I was saying value has underperformed for 10 years; momentum will continue but valueâs time will start coming and industrials, cement, home building suppliers like paint companies are what we were liking. So I shifted into that but I have held some IT still. Alibabaâs Cloud business is breaking even finally. The Cloud guy of Amazon has become the CEO of the company because 52% of the Amazon revenues are now coming from their Cloud unit.
Digital is a multi-year megatrend, do not miss that. It is a bit of a rash decision to not look at those valuations, but if you have to get in at the ground level, then you have to have that optimism. I would say industrials, cement on the value and on the growth side technology, digital very much continue. It still has got a year, year-and-a- half of runway to go.