Post a long weekend, post some key earnings and with end of elections inching closer, how do you see things shaping up over the near term particularly given that globally, we are seeing resilience?
The life of a portfolio manager at the current stage is really difficult. You have an auto slowdown. Real estate sales are down broadly 30-40%. ACs sales are down 10-15%. So broadly, there has been a slowdown in urban consumption. Even if you look at the rural market that is slowing down, that is probably in a crisis right now.
There is absolutely no capex happening in steel, power. These are basically the larger capex cycle plays. It is not easy for portfolio managers to buy high PE multiple stocks without growth but on expectations of growth, that has become some kind of a problem. There are things which are doing well. Like the restaurants and bars in Mumbai are doing well. There is a company in China, Kweichow, and that has become a $150-billion market cap company. It is an alcohol company. So basically those are the kind of themes which should ideally do well over the longer term.
Now the economy needs at least a 100 bps cut in interest rates. Shaktikanta Das is the most dovish RBI governor that we have had in the last 15 years. The economy needs a kick start. Economy looks poor but we in the stock market do not have to worry too much.
There are two main rules of the game. Rule number one is that everyone makes money in a bull market. Rule number two is like there is always a bull market in at least some sector. So our idea is to just buy the sectors which will lead the next bull market.
Could the spike that we are potentially seeing in crude throw a spanner in the works at this point?
Inflation is at 2% and probably is going to 3%, 4%. But your interest rates are at 6-7%. 10-year bond yields are at 7%. I do not see how this crude rally is a secular rally. Crude is now in a proper range between $45 and $70 broadly. That is broadly going to be the range for the next few years. This is what I expect. Crude will not be such a large barrier. We have broken the back of inflation and so inflation is not there in the country. We need large rate cuts and that is the only way to move the economy going forward.
I do not see crude as a large barrier. Of course, it will affect some aviation stocks and those stocks which are actually related to crude, but overall I do not see a very large impact from crude.
Would you then place your bets on some of the rate sensitives?
We are always long financial so that is one sector. Our largest weight for the last five years has been financials. Financials and consumers are two sectors where you can make money and retain money. So private financials, private banks.
We do not buy government stocks but general insurance companies, life insurance companies are now giving good opportunities. Financials per se get better with size. Like you would not open your account in a new bank. You would open an account with an HDFC Bank because it already has 5,000 branches. These companies get better with size. Not a lot of people buy HDFC Bank and Kotak Bank and the like because everyone wants to buy the new cool thing.
2018 taught a lot of lessons. Because 2017 was all about chor companies and low quality stocks which made a lot of money, 2018 was about going back to quality. Every three years, you have a midcap rally kind of year. It happened in 1999, 2003, 2007, 2010 and in 2014 when Modi came back. It also happened in 2017. So probably the next large midcap run will happen in 2020 or 2021. By 2019 end, I will probably say that this is the time to go out there and buy all these midcap stocks but till that time, we have to stay with the quality 25-40 stocks which are there in the market.
That is our broad idea. We have a portfolio of consistent compounders and a portfolio of super stocks. Coming to super stock portfolios, we are very new in the bull market. We just made a bottom two months back but slowly we have got an idea that these are the stocks that we have to be super bullish on and trade the next few years.
You put up an interesting chart for the last eight years and you have also said apna time kab aayega (When will my time come?). I am going to ask you that question. when is it going to be our time for earnings growth?
This year can be a good year. It does not matter, our companies are growing at 30%, 25%. The private financials were always doing well. The thing was that every year you had some problem or other. In 2015, steel companies and PSUs started reporting large provisions and that is why your earnings went down. FY16 became a washout because of demonetisation. Then again you had the steel companies and those kind of companies slowing up and because of that the Nifty growth did not look good.
But private financials did very well as did consumers. Consumers always look expensive to you but they do not have a large price corrections. They will continue to be expensive for some time and after one year when they normalise, people will buy them again. So consumer and financials these are two secular trades. You can keep changing your horses. We change the horses from NBFC to private financials and you can keep doing that. But these are two sectors where you can make money.
The smallcap guys make money but they do not retain it. They do not take the money home. And that is not worth it. It is a game that we all want to play. We all are greedy. We all want to get rich faster but it is very dangerous game. So you need to have a portfolio kind of approach and quality stocks are doing extremely well in India. Those are the stocks which are growing at 20-25%.
Look at the other smallcaps. The earnings growth is not there. For me to buy a smallcap, I need at least 30-40% growth but that is not happening. It is not even there in the SME space.
What did you make of the Reliance earnings?
I might have vested interest in Reliance so that is point number one. All disclosures attached, we have positions and our PMS, our advisory everywhere. Reliance is one of a kind of a company. It gets free cash flows from the refinery and petrochem business and it invests all that in Jio expansion. I am a big bull on Reliance and I believe this is the leader of the next bull market.
This company will keep growing and surprising a lot of people for the next three, four, five years on the upside. It is easy easy 25-30% CAGR plus trade for the next three, four, five years. This guy creates monopolies every time and this time it is going to be no different.
If you look at the retail division, the way he is scaling it up, today he has become the largest grocery retail. He became the largest electronic selling retail company with Rs 40,000 crore of sales. Not many entrepreneurs know how to scale up or do not scale up so well, but Reliance is a super star. You just keep it every quarter. You will have analysts giving Rs 100 up or Rs 100 down in targets. That will keep happening but for us it does not matter, this is a guy who knows how to scale up.
Jio is a class thing and I am super bullish on this. This is a guy who knows how to scale up and how to create monopolies. And I do not see how anyone can compete against him in any business line like refinery, petrochemical, Jio or retail for the next three, four, five years and there will be a demerger. Now, the story for the short term is all about deleveraging. How quickly he can deleverage his debt of Rs 2.5 lakh crore, but overall I am a super bull on Reliance Industries. But remember, I can be wrong and I can change my positions but I am very bullish on it.
What about Jet Airways, the saga keeps getting worse by the day! It is facing the risk of landing in NCLT.
If you want to just give away money, give it to me. Why do you want to invest in Jet Airways? But overall, Jet Airways had happy customers and happy employees. But happy customers and happy employees without good economics do not make sense. That is one of the biggest learnings from the Jet saga.
In aviation, every three, four years a few airlines will go bankrupt that is how the game is played. The one which is the most efficient and the low-cost guy will keep gaining market share but these are punts, you can trade them for one or two years. You can buy Indigo and all those kind of stocks but that too is for a punt. So we do not have any aviation.
Even if Jet Airways goes to NCLT, what will they get because this company has no assets! I do not know why they would go to NCLT. The only way out here is take a large haircut on your debt like Rs 8,000-9,000 crore of debt. That is the only way Jet can be revived but I do not see a chance. This is not SpiceJet. It had Rs 1,100 crore of debt. This guy has Rs 9,000 crore of debt. Why would I buy a Jet rather than starting my own airline? I still do not understand why the stock trades at these levels right now.
What are you doing with the other names then?
I am not buying anything in aviation. We missed that trade out. Actually, we were just kind of stupid and lazy. We knew this was going to happen but we did not make money.
What about IT? How are you looking at it? Is it a safer bet at this point?
We study a lot of markets globally. I am so sorry I am going a little off topic, but this is important research that we did. In the US market. if you are Apple you make $70 billion of cash flow every year, now you can reinvest that cash flow at 2.5% bond yields that is the bond yield out there. If you keep buying back at 12-13 PE multiple, basically you are getting your money reinvested at 8%. So buybacks make a lot of sense in the US market because if Apple keeps buying back at 12 PE multiple, they are basically making 8-9% for their shareholders every year plus 4-5% earnings growth.
Basically, you get 13-14% in a year CAGR returns basically for Apple. But in Indian IT companies, our reinvestment rate is 8% that is the 10-year bond yield basically. So if these companies buy at 15 PE multiple, it makes no sense because you are reinvestment return is about 7-7.5%.
Logically a buyback at 15-17 PE multiple makes no sense for Indian companies. Overall, I like a company called LTTS, they are market leaders in engineering R&D. We might have vested interest here but that is one stock where I expect 20% plus dollar growth. TCS is doing extremely well. Other IT stocks we do not track so closely because they are not like fast growing companies but buybacks can create a lot of wealth if the stock is cheap and available at lower multiple.
What are you picking out from the FMCG basket given that you are bullish on consumption?
We are very bullish on consumption but FMCG is a very small part of it but we are more bullish on like FMEG. A company like Havells will do well. They are expensive right now and they can fall 10-20% but I do not see how a slowdown can come in consumption. You should buy the MNCs out there. The Indian companies are okay, but keep your focus on the MNC consumer companies. The profit pools are very small in India, like HUL’s profit is less than $1 billion.
These companies will not top out here at $1 billion, these companies have a long way to go. These consumer stocks will keep compounding your capital and they will beat your Nifty for a long time, even if you buy at two times Nifty PE multiple. These companies have extreme high ROEs of 100%, Nifty cannot beat consumer companies if you have a 10-20 year horizon.
So any other names that you would like to share then?
Havells is a good bet. It is one of our core stock portfolio. I have said Reliance is good. Havells is good. Godrej Properties, if you can get it cheap. This is a $2.5 billion market cap company, 90% market is not there. I do not see how in the next 5, 10, 15 years this company will not be a lot-lot-lot higher from here.
Look at market leaders in their niche when competition is struggling. Those companies are unbeatable typically. But I might have vested interest again and I might be wrong as well but I am super bullish on like Godrej Properties, Havells. We have it that from cheaper levels but I am still pretty bullish on these kind of themes.
- ISL 2020-21: Mumbai City FC vs Odisha FC: Preview, Team News, Timings, Live Streaming Info
- How to watch Premier League 2020/21: live stream every EPL fixture from anywhere
- How to watch Premier League: live stream every 2020/21 EPL fixture from anywhere
- John Beilein on Michigan in 2020-21: 'Don't sleep on this team'
- The surreal world of sports in 2020
- 'Stay disciplined and stick to my plan' does the trick for Kane Williamson
- India vs Australia 3rd ODI | Hardik Pandya, Ravindra Jadeja script consolation 13-run win
- India vs Australia: Virat Kohli earns praise from Laxman and Gambhir for 'phenomenal' run
- Alex Carey hopeful of facing full-strength India, but his T20 challenge looms large
- Most Popular Dog Breeds in America in 2020
- There is nothing for me to resolve: Punjab CM after meeting Amit Shah over farmers' protest
- Top news of the day: Bharat Bandh successful, say farmer leaders ahead of meeting with Amit Shah; over 500 admitted with epilepsy in A.P.’s Eluru, and more
- The best Cyber Monday monitor deals for 2020
- Amazon Event 2020: Everything announced, from Luna to Ring's indoor drone
- The best Cyber Monday printer deals for 2020
- The best desktop monitor deals for December 2020
- The best cheap desktop computer deals for Black Friday 2020
- Celebrity deaths in 2020: Famous faces lost this year from Des O'Connor to Diego Maradona
- Best Cyber Monday deals 2020: Tech sales to shop today
- The best Cyber Monday Fitbit deals for 2020
Next large midcap run may come in 2020-21, for now stick to largecaps: Amit Jeswani, Stallion Asset have 2532 words, post on economictimes.indiatimes.com at April 22, 2019. This is cached page on Movie Breaking News. If you want remove this page, please contact us.