ETMarkets.com“The froth has been in the broader market. But one can still buy decent companies and one can make decent returns even in this market. I am not saying that we are going to get value but there are enough places to make money,” says Shankar Sharma, Vice-Chairman & Joint MD, First Global.
The question on everyone’s mind is in what stage of the bull cycle are we currently in?
We are still in the mid stage. We are definitely not at the end stage of the bull market. It is obviously not early because a large part of last year’s move was the first stage of the bull market. So by no means is this a late stage bull market. It is still fairly middle aged. It may not be as sprightly but hey not bad still!
Where do you feel the market is getting a little bit frothy?
This froth has been in the broad market. Smallcaps and midcaps have had a very long winter in the wilderness from 2018-2019 up until March of 2020. There were two, two-and-a-half years of very tepid performance -- down 25-30%. They have a recent history of very poor returns and from a poor return situation, you can have a very extended period of super normal returns which is exactly where we are. Stocks have gone up like crazy, some of them are probably unwarranted but one does not need to be going out there and buying very high risk.
One can still buy decent companies and one can make decent returns even in this market. I am not saying that we are going to get value but there are enough places to make money. For example, we bought real estate stocks, so let us say DLF three-four months back.
It has given 30-40% return in three months, which is far ahead of the ones that did well previously which is the pharmas and ITs. So there has been rotation away from those to some extent into relatively more real world, terrestrial going out businesses like PVR, Inox. They have started doing very well. Utility stocks have done very well and so we have kind of realigned ourselves and that has worked out quite okay. One can play this market even now if it is played sensibly. It is not by any means 100% froth.
After the run up in real estate that we have seen this week, is there still money to be made there because one cannot figure out what is the reason behind the rally? It cannot simply be because a few projects here and there got completely sold out!
Well that itself is a decent reason, isn’t it? Remember markets do not require a huge amount of good news to do well. What the markets need by and large is for a very bad situation to turn moderately bad, very awful becoming semi-bad or just bad is good enough! In real estate, a case can be made.
What are the asset classes available in India? There is gold, real estate, equity markets, fixed income. Fixed income clearly has no upside. There is probably downside there. Gold is not going anywhere because crypto has emerged as a big alternate asset class for people wanting alternates away from the US dollar. So what is left is equities and real estate, two major asset classes in India.
Equities have done phenomenally well. Real estate really tanked because of Covid. There is a rotational trade that was available which was exactly why we bought DLF that look equity markets doing well when people have got more money and when people have more money they want to buy the safety and security of your home. Many people want to do that which will mean that inventories will get cleared out somewhat and that is exactly what we are talking about. Money made from the stock market inevitably finds its way into the real estate market. This is probably where you are in the cycle right now. It can always be a lagged effect.
One needs 12-15 months of solid equity gains and then the needle starts to turn a bit into real estate. We are exactly at that point right now.
Is there a bull run real estate? When there is a bull run, it is not only for a few weeks or a few months. It is usually a multi-year bull run and this one has got the makings of the first one probably since the Lehman crisis. Do you think this pocket is safer to invest in for a couple of more months at least?
I thought you said long term. Long term is not two months. Is it?
I said a few months.
The point is cycles take a while to form and then they take a while to play out. I am talking about big asset class cycles. I am not talking about individual stocks which can be very volatile. I spoke about the equity cycle which was very low and then upturn came from last year. Real estate has been in the doldrums in India for God know how many years. It has just started to perk up. So it will be foolhardy to call an end to that because it is coming out of a very long spell again in wilderness.
So, DLF, Godrej Properties, etc will benefit from a big macro trend into real estate and these are super tankers, they do not move around very quickly either way -- good or bad. If they have started moving now in a good way, I do not think it is going to just peter out in two months’ time. You are looking at a fairly structural move up in real estate, given strong equity markets which is all good news for these companies.
There is something very interesting happening in the reopening trade. PVR has run up to Rs 1,500. Indian Hotels share price is Rs 175 plus now. There is Inox. Even some of the other platform like EaseMyTrip, are doing very well. Is there a move here that one can cash in on?
Let us not get too bothered about an immediate move because one of the biggest tendencies we have is that yeh toh bahut chal gaya, abhi kya lena, 20% up ho gaya (This has worked well for too long. What’s next?) Stocks have infinite room on the upside. They have finite room only on the downside. Should you take it seriously because I had made a lot of money on the upside but also equally on the downsides.
In big cycles, one should realise that sometimes some good up move in an Inox or a PVR or DLF is a better time to buy than to have bought it maybe six or eight months back. It was way too early. I always say one should be only one step ahead of the market and not 100 steps ahead because when you are a 100 steps ahead of the market, you are too early into the trade which means a period of pain and a period of watching the world go by while your stocks are not moving. So one should be just slightly ahead.
It is actually a pretty good time even now to buy a lot of real estate or these opening up trades because they have just started to gain traction. What is the downside in a multiplex company?They have seen the worst possible time in that business. Things can only get better if instead of zero customers, you have 10 customers. That is 10X of what you had a year back. I think it is all good for them.
The chatter from a Tech Mahindra, from an HCL Tech or the commentary coming in from Wipro all point to a multi-year bull cycle. But how much of it is already digested in the stock price?
IT is one of the industries where India has a big comparative edge. Pharma used to have that. We have lost that edge to China. Now in some sense, this API trade brings a bit of their business back to India. India has a comparative edge as a nation in IT services. When Cloud started to gain traction in 2015-16, there was wobble, there were doubts. I was one of the doubters. I have seen a big observer of this industry for 25 years and this is arguably the best set of managements you can find in India. They are clean, they are focussed, they are brilliant on execution, great thinkers, great strategy; forget about products and all that which is a different kettle of fish. But on what they do, they are flawless or near flawless. When you have a set of companies in the largecap and now increasingly in the midcap IT spaces, which have managed to overcome so many challenges, visa problem and cloud problem, you have to take a blind bet but a reasonable bet.
These stocks will still give you decent returns in the future and they are not expensive by any stretch. They are not valued like tech companies. They are still valued as manufacturing companies. They are still valued like specialty chemicals companies. They are not valued like a Zomato. Why should we start cribbing about 30 times earnings, 35 times, these are damn good business of great management, great governance. One can still make serious money in these.
The other pocket which is considered expensive is consumption. Now consumption is also going up, . Where is this story going? Even ITC has managed to move.
I knew that was coming. It has gone up 15% which is like the equivalent of 500% for most other stocks in the market and the whole Street is delirious that an immovable asset has become a movable asset. ITC was considered an immovable asset all through last year and most of this year. India is a billion consumer market, There will be times when these stocks would not do well; there will be times when they do well.
In a mad bull market, these stocks will not do well. They might do well in an absolute sense. One can make some money on Lever. Lever has gone up from Rs 2,200 to Rs 2,700-2,800 but in a mad bull market, you are not going to make outsized returns in these companies. These companies are more stable state market scenario companies or even bear market scenario companies but you are not going to end up making 25-30% CAGR in these companies in the kind of bull market we are in right now.
Here you are better off going a little bit away from the traditional consumer companies. Those are not going to make you seriously rich. They might not make you poor as smallcaps might but they are not going to help you buy a penthouse, no way.
The question on everyone’s mind is in what stage of the bull cycle are we currently in?
We are still in the mid stage. We are definitely not at the end stage of the bull market. It is obviously not early because a large part of last year’s move was the first stage of the bull market. So by no means is this a late stage bull market. It is still fairly middle aged. It may not be as sprightly but hey not bad still!
In that context, when you are in your middle age, you need to be careful. You can be more carefree at an early stage of life or in the early stages of a bull market. One has to be a little careful now but there is no need to be extraordinarily cautious because it still got legs. I am pretty clear that this is nowhere close to topping out. There might be some big correction, crash and all that is part and parcel. You cannot rule that out but it is not going to be a bear market.
Where do you feel the market is getting a little bit frothy?
This froth has been in the broad market. Smallcaps and midcaps have had a very long winter in the wilderness from 2018-2019 up until March of 2020. There were two, two-and-a-half years of very tepid performance -- down 25-30%. They have a recent history of very poor returns and from a poor return situation, you can have a very extended period of super normal returns which is exactly where we are. Stocks have gone up like crazy, some of them are probably unwarranted but one does not need to be going out there and buying very high risk.
One can still buy decent companies and one can make decent returns even in this market. I am not saying that we are going to get value but there are enough places to make money. For example, we bought real estate stocks, so let us say DLF three-four months back.
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It has given 30-40% return in three months, which is far ahead of the ones that did well previously which is the pharmas and ITs. So there has been rotation away from those to some extent into relatively more real world, terrestrial going out businesses like PVR, Inox. They have started doing very well. Utility stocks have done very well and so we have kind of realigned ourselves and that has worked out quite okay. One can play this market even now if it is played sensibly. It is not by any means 100% froth.
After the run up in real estate that we have seen this week, is there still money to be made there because one cannot figure out what is the reason behind the rally? It cannot simply be because a few projects here and there got completely sold out!
Well that itself is a decent reason, isn’t it? Remember markets do not require a huge amount of good news to do well. What the markets need by and large is for a very bad situation to turn moderately bad, very awful becoming semi-bad or just bad is good enough! In real estate, a case can be made.
What are the asset classes available in India? There is gold, real estate, equity markets, fixed income. Fixed income clearly has no upside. There is probably downside there. Gold is not going anywhere because crypto has emerged as a big alternate asset class for people wanting alternates away from the US dollar. So what is left is equities and real estate, two major asset classes in India.
Equities have done phenomenally well. Real estate really tanked because of Covid. There is a rotational trade that was available which was exactly why we bought DLF that look equity markets doing well when people have got more money and when people have more money they want to buy the safety and security of your home. Many people want to do that which will mean that inventories will get cleared out somewhat and that is exactly what we are talking about. Money made from the stock market inevitably finds its way into the real estate market. This is probably where you are in the cycle right now. It can always be a lagged effect.
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One needs 12-15 months of solid equity gains and then the needle starts to turn a bit into real estate. We are exactly at that point right now.
Is there a bull run real estate? When there is a bull run, it is not only for a few weeks or a few months. It is usually a multi-year bull run and this one has got the makings of the first one probably since the Lehman crisis. Do you think this pocket is safer to invest in for a couple of more months at least?
I thought you said long term. Long term is not two months. Is it?
I said a few months.
The point is cycles take a while to form and then they take a while to play out. I am talking about big asset class cycles. I am not talking about individual stocks which can be very volatile. I spoke about the equity cycle which was very low and then upturn came from last year. Real estate has been in the doldrums in India for God know how many years. It has just started to perk up. So it will be foolhardy to call an end to that because it is coming out of a very long spell again in wilderness.
So, DLF, Godrej Properties, etc will benefit from a big macro trend into real estate and these are super tankers, they do not move around very quickly either way -- good or bad. If they have started moving now in a good way, I do not think it is going to just peter out in two months’ time. You are looking at a fairly structural move up in real estate, given strong equity markets which is all good news for these companies.
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There is something very interesting happening in the reopening trade. PVR has run up to Rs 1,500. Indian Hotels share price is Rs 175 plus now. There is Inox. Even some of the other platform like EaseMyTrip, are doing very well. Is there a move here that one can cash in on?
Let us not get too bothered about an immediate move because one of the biggest tendencies we have is that yeh toh bahut chal gaya, abhi kya lena, 20% up ho gaya (This has worked well for too long. What’s next?) Stocks have infinite room on the upside. They have finite room only on the downside. Should you take it seriously because I had made a lot of money on the upside but also equally on the downsides.
In big cycles, one should realise that sometimes some good up move in an Inox or a PVR or DLF is a better time to buy than to have bought it maybe six or eight months back. It was way too early. I always say one should be only one step ahead of the market and not 100 steps ahead because when you are a 100 steps ahead of the market, you are too early into the trade which means a period of pain and a period of watching the world go by while your stocks are not moving. So one should be just slightly ahead.
It is actually a pretty good time even now to buy a lot of real estate or these opening up trades because they have just started to gain traction. What is the downside in a multiplex company?They have seen the worst possible time in that business. Things can only get better if instead of zero customers, you have 10 customers. That is 10X of what you had a year back. I think it is all good for them.
The chatter from a Tech Mahindra, from an HCL Tech or the commentary coming in from Wipro all point to a multi-year bull cycle. But how much of it is already digested in the stock price?
IT is one of the industries where India has a big comparative edge. Pharma used to have that. We have lost that edge to China. Now in some sense, this API trade brings a bit of their business back to India. India has a comparative edge as a nation in IT services. When Cloud started to gain traction in 2015-16, there was wobble, there were doubts. I was one of the doubters. I have seen a big observer of this industry for 25 years and this is arguably the best set of managements you can find in India. They are clean, they are focussed, they are brilliant on execution, great thinkers, great strategy; forget about products and all that which is a different kettle of fish. But on what they do, they are flawless or near flawless. When you have a set of companies in the largecap and now increasingly in the midcap IT spaces, which have managed to overcome so many challenges, visa problem and cloud problem, you have to take a blind bet but a reasonable bet.
These stocks will still give you decent returns in the future and they are not expensive by any stretch. They are not valued like tech companies. They are still valued as manufacturing companies. They are still valued like specialty chemicals companies. They are not valued like a Zomato. Why should we start cribbing about 30 times earnings, 35 times, these are damn good business of great management, great governance. One can still make serious money in these.
The other pocket which is considered expensive is consumption. Now consumption is also going up, . Where is this story going? Even ITC has managed to move.
I knew that was coming. It has gone up 15% which is like the equivalent of 500% for most other stocks in the market and the whole Street is delirious that an immovable asset has become a movable asset. ITC was considered an immovable asset all through last year and most of this year. India is a billion consumer market, There will be times when these stocks would not do well; there will be times when they do well.
In a mad bull market, these stocks will not do well. They might do well in an absolute sense. One can make some money on Lever. Lever has gone up from Rs 2,200 to Rs 2,700-2,800 but in a mad bull market, you are not going to make outsized returns in these companies. These companies are more stable state market scenario companies or even bear market scenario companies but you are not going to end up making 25-30% CAGR in these companies in the kind of bull market we are in right now.
Here you are better off going a little bit away from the traditional consumer companies. Those are not going to make you seriously rich. They might not make you poor as smallcaps might but they are not going to help you buy a penthouse, no way.
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(What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
...moreDownload The Economic Times News App to get Daily Market Updates & Live Business News.
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
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