The PE continues to look expensive. But FY21 being washed up, people will be looking at FY22 and that is where the comfort will come from, says the Co-CEO, Avendus Capital.
They say do not ask fund managers what they feel, ask them what they are doing and that tells their right position. How is your long short positioning?
We have strategies across an absolute return and relative return as well. In case of our absolute return products, what we are doing basically at this point in time is having some cash and the relative percentage of hedges are a little higher as compared to our history.
We are taking a little cautious stand because we are extremely bearish on the market, but we think before the market consolidates and moves up further, we will need to have a healthy correction. That is where we think the market is probably headed in the extremely short term. Having said that, in the medium term sense, we are to move higher because as economies stabilises and people are in a lockdown and things open up, month on month data or probably the economic data on a month on month basis is likely to improve. We are probably waiting to see if in the shorter term, we can get some amount of cool off where we will look forward to deploying our money.
You remain constructive but to make the market healthier for much more bullish calls to be taken or bullish positions to be taken, do you believe that softening will make the market healthier?
Of course, because you cannot have a market which is a linear one probably because the potential correction which may happen can be pretty sharp and shallow as well. The wider market may probably get hit if we are looking from a medium to longer term perspective. Corrections or a small bound of corrections is very healthy for the market and on technical basis it becomes pretty strong. So from a fundamental aspect and from an optical point of view, the PE continues to look expensive. But FY21 being gone, people will be looking at FY22 and that is where the comfort will come from.
What do you make of this argument that the rally in emerging markets including India is fuelled by overseas liquidity. Some meaningful evidence of FII trade, FII flows resumption has only happened in the last 10 days.
From the global standpoint there is a view that the dollar can be in a longer term bearish scenario and if that is the case, then you will see money finding its way into different asset classes. That is why you find that on one hand, gold is appreciating and at the same time, bond yields are coming down and equities across the globe are performing including the emerging markets which is considered to be a risk asset.
Now when money is flowing, the sea of liquidity sails all boats and that is what is happening. So, definitely global liquidity is helping all the asset classes and my sense is because of the monetary stimulus and the fiscal stimulus which is close to about $ 20 trillion, an unprecedented amount in a year, it has to find a way into assets. That is why from our end also we say that while markets look a little bit stretched, from a medium term perspective, I am still constructive on the market.
The steel counters are the best performing in trade today. What are your thoughts on the global cyclicals, especially commodity led ones like steel?
There are two parts to it – one is liquidity and the other is incremental data coming from a global economy standpoint. For example, in China, if you are looking at the economic numbers which are coming from there, it is improving. Steel prices and iron ore prices are both in positive traction. Basically liquidity is finding its way into commodities as well. That’s why gold and silver are moving but leaving that aside, from the economic point of view as well, we are seeing firming of base metal prices which will probably lead to better health for the steel companies in India as well.
When the month on month data starts improving, there would be a hope that metal consumption will also start improving. It is a combination of a global liquidity aided money flow into commodities along with a more positive China economic data that is leading the whole metals pack and this may continue for a while.
What is the comfortable area to plan your short trades if the portfolio has been riding through longs from the March lows and is getting uncomfortable now? Is it banking or some large NBFCs?
Unfortunately I do not think banking is an area purely because banking has been an underperformer over the last couple of months vis-Ã -vis the Nifty index. My view is once the capital raising is over or larger part of the capital raising is over, we should see some traction coming back to banking rather than going the other way.
There have been some amount of realignment of portfolios in the banking sector but on an overall basis, banking should remain strong. Having said that, my sense is some pain is continuing there and you might want to look at it because that sector could underperform in the immediate short to medium term.
Apart from that, those sectors which have rallied hard and where the valuations have gone way higher than the averages are the ones to look for at least in the shorter term. But it is extremely tough to find those kinds of short opportunities in a market which is having momentum at this point in time. You have to be pretty agile on the short positions as well.
The momentum which pharma has right now has not been seen in many years. Is it the API companies you are looking at or global pharma largecaps?
You are right in the sense that API companies have delivered fantastic numbers till now. Over and above that also, the numbers have not disappointed purely because the cost control measures have been phenomenal. It is not only about pharma. Across the board, the cost control measures have led the numbers to be much better than expected.
Coming back to pharma, we think that the sector still has momentum. They have already rerated in terms of the PE. My sense is you have to be extremely selective in finding the good opportunities from here onwards. The domestic companies’ price could be fair or rich whereas there is still some opportunity in the US speciality pharma companies which can give some amount of leeway from here. You have to be pretty bottoms up at least in the pharma sector after the fantastic rally we have seen till now.
Which is the most overweight area where some serious amount of wealth can be made over the next two to three years and which has become a part of your core portfolio?
You are asking for my secrets but in any case, consumer discretionary is something we are very keen on and my sense is that once things normalise in terms of Covid, the accumulated savings which people have not spent in the last three to four or five months, is going to come out and hit the streets in terms of their spending power. Consumer discretionary is a sector to look at from the medium term and a longer term perspective. India being a consumer driven economy, consumer discretionary should be looked at as a medium to long term bet which we are very positive on.
Any stocks or a theme or sub areas which can be a good Atmanirbhar play from the market side?
There are definitely some places in terms of durables which can stand as a beneficiary to the whole Atmanirbhar mission which is strongly pushed by the government. Basically, there would be opportunity but to be very honest, apart from a couple of API manufacturers or consumer durables, we do not find a whole lot of opportunities in the current scheme of things.
As things evolve or improve, we may see some opportunities coming up later on but this is something which definitely has to be kept in mind as a thematic play should this progress as per expectations.
