As we head into Samvat 2069, the mood on the street is much better than what it was last year, especially after the drubbing market received in December. But this time around, the Nifty is at 5700 and not 4600.
CNBC-TV18's Udayan Mukherjee sat down with Ramesh Damani, member, BSE; Madhu Kela of Reliance Capital and Manish Chokhani of Axis Capital to discuss if this run is sustainable, whether it can be trusted and if investors can get overweight on Indian equities once again.
According to Kela, people are missing out on one of the biggest opportunities the market has to offer. "I remain positive on the market despite of the 30-percent run; every dip should be used as a buying opportunity," he said.
Below is an edited transcript of the discussion on CNBC-TV18.
Q: Do you think a bull market has started?
Kela: I have been saying that for sometime now. I think those investors who are focusing on macro-economic factors and indices are actually missing the biggest opportunity in the market. There are so many bottom-up opportunities and if investors are focused on even one that exists in every sector, but obviously when the market mood is positive, it helps. So to that extent, I remain very positive on the market inspite of a 30 percent run. Every dip should be used as a buying opportunity.
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Q: You have not been table-thumping bullish, but would you concede that a bull market is well underway albeit with some fits and starts?
Chokhani: I share the view that, at this point of time, investors should not be thinking about the bull market, but about stocks. Because while the Index has not performed well, there have been stocks that have offered their investors fantastic returns and I suspect that same thing will continue.
The reason I feel a lot less exuberant is because instead of focusing on investing, I see the other end of the spectrum which includes the corporate sector. While it is great to be making money, unless underlying fundamentals of the country change the benefits will be short-lived and unbalanced. Though I am fully invested, I do not feel bullish.
Q: You have been voicing the most bullish sentiment over the last three-to- four months. Do you have any doubts on the start of a bull-market and the ingredients that are absent today will slowly fall into place?
Damani: If it walks like a duck, looks and quacks like one, then it is a duck. Typically in the first stage of a bull market, it is individual stocks, and not the Index, that move. But look how the market reacts to news- if there is bad news it sells but makes the money back in a day. So, it looks and feels like a new bull market is underway.
We will know for certain only with the passage of time whether this is truly the beginning of a new bull market or just a misleading rally. But the evidence suggests there is leadership in the market, the price action is very suitable and there is zero public participation which of course makes me believe that there is a long way to go.
Q: You would trust the Index at this point because some investors got bullish early in the year, in January and February, and got the whack in June, which has made a lot of other investors skeptical. But are you more confident this time?
Damani: I was confident at that time too. I had earlier explained that these things happen and typically, the market will go back and test the bottom. But you look through the lows in December and June, individual stocks have been much higher than they were in December.
So clearly if you want to buy large pieces of equity, you have to pay a significant premium in the market. I think markets are never going to give you a straight line or free ride. It will always be choppy and volatile. The fall in June even crushed the bullishness out of me. But individual portfolios are doing well and that is always a good indicator that good times are ahead.
Q: What changes do you suggest to increase the participation in equities?
Kela: We are all doing our best by urging people to participate in equities. There are so many foreigners who are coming and making so much money. I am very confident that participation in equities will increase.
Q: Will it require two years of consecutive performance to change the situation?
Chokhani: I think increased participation in equity in India will take longer unless we can create a systematic engine through the markets to increase participation. I was very hopeful it would happen through the disinvestment programme because the last bull market was really created by privatization, when there was early participation in stocks like Maruti and investors made serious amounts of money.
And I have grave concerns on little being done to keep the two engines of the economy- external trade and the capital markets. Nothing is being done to solve the problems in trade and the reducing percentage of domestic market participation as foreigners own more and more of the country. This should be a cause for alarm.
Industry is looking overseas, from energy and capital to exportable surpluses. Instead of creating companies here, Indian companies are buying companies overseas. These are not good portents for fundamentals four-to-five years down the line. It just leads to an inflationary economy where asset prices are up. I also believe that the market will make a new high between now and next Diwali.
But it remains to be seen if that new high is meaningful in real terms. So all of us on this panel will find 20 great stocks next year. We will probably come back and say the market is up 25-50 percent. But it does not help the overall economy or the country.
Q: Can you make a decisive argument today saying equities will outperform gold and real estate over the next 24 months?
Damani: I have made that argument. I agree that I have never seen such a severe under-ownership of Indian equity. If you are a 25-year old Indian today and you are not looking at equities, you are doing yourself a huge disservice. You are going to wake up at 45 or 50 being very poor because you put your money into fixed deposits or you bought money at the top of the real estate cycle.
The economy cannot touch USD 4 trillion in the next five-six years with a 25-percent savings rate and reduced percentage of Indian equity not move up- it is mathematically not possible. So I think what will happen is that the PE ratios of the good companies will expand dramatically and at some point in this bull market, I am convinced that the retail investor would be the foot pushing the pedal and not the FII investor, but the retail investor. It may take two or three years, but it is going to happen.
Kela: Retail investors should not look at equity only from a 12 or 24-month perspective. In spite of whatever has happened, equity has offered a return of 15.8 percent in the last 25 years. Though in the last five years, the return on equity has been at minus-6 percent, for 20 years the return equity is 21 percent CAGR. Which asset class, including gold even after such a big run offers only 11 percent, offers such huge and consistent returns?
In the last five years, earnings have gone up 41 percent, but the Index has gone down 6 percent. We do not suggest investing all your money. We call for an investment of at least 5-10 percent of your income by taking a little longer-term view similar to fixed deposit, gold or real estate.
Q: Would you advise people to shift to equity funds today?
Kela: Clearly. Gold can be about 10 percent of one's portfolio. There was maximum allocation in gold on fears that the US and Europe will go down, On the back of this if the equity allocation is lesser than that of gold, god help you.
Q: Another hindrance to increased equity participation is the tepid macro growth and problems in the West and shy away from investing in equities. How would you comment on such an approach?
Chokhani: I am again saying that it does not matter whether it is a bull market or not. If we are going to wait for such a situation, the I do not think there is any case to be made for India, at least not in this Samvat.
Q: Do you think consumers can continue to be the leaders, because there is scepticism that money should shift out of the performing consumers now?
Damani: The whole promise of India is the emergence of a strong middle-class in the next five-ten years as the economy reached the USD 4-trillion mark. And this emergence will be led by consumers.
Q: There is the belief that if you are late into the game, it is better to buy investment cycle stocks because they trade at cheap valuations. Is it a dangerous game or do you advocate this?
Chokhani: We are living in an inflationary world now, especially in India with the way the economy is being run. I think inflation has turned endemic represented by falls in the rupee, high deficit resulting in tighter interest rates. So what this means is that for FMCG you have to have pricing power. It is not about volume growth, but pricing power.
And when this is extended for the next 5-10 years at USD 4,000 per capita, the incremental money will go into media, into buying a better car. So At USD 4,000 your basket in FMCG will probably still remain the same. So while there are cash flows, the incremental money will get made in consumption stocks on the discretionary side rather than the FMCG side. And the market is extraordinarily bullish on the media sector.
Q: Is the media segment bullish? In the last four years, I have not even heard the mention of media.
Damani: I love this! Media professionals are not bullish on their own industry. For a bull market to start, you need a very depressed sector which will surprise people on the upside. Given the Digitisation Bill that has been passed and now implemented, I think the revenue stream of the media companies will change and that presents a great opportunity.
All the big corporate houses are foraying into the media businesses because the valuations are depressed and it is a good opportunity. And ad-spends are the lowest in India on television. There is no place but to go, but up. So after creating this great consumer society where everyone wants to advertise, where are they going to advertise? Television. So my sense is that media will be probably one of the sectors powering up the economy in the next few years.
Chokhani: And I just want to put this in context because I have great memories of this sector myself. Zee TV issued an IPO in 1991-92 with a market cap at Rs 25-26 crore. The current market cap is Rs 28,000 crore and the story is just beginning. So it is a fun place to be.
Kela: I also wish to add that now there is an entry barrier for new players. Now getting money whether equity or debt it has become extremely tough. So those few who survive will consolidate and that is already happening in the whole sector.
Q: What have you been buying of late?
Damani: A lot of money has gone into media. Among the largercaps, I like Tata Global and Godrej Properties, even at these rates. Among the smaller caps, we like a recent PSU that has been disinvested called National Building Construction (NBC). Though it is trading at cash value, it looks okay to me.
A private player in the deregulated LPG sector, Aegis Logistics, has also caught my eye. There are lots of stocks offering good value and I urge to investors to open a demat account and buy a piece of India at a great price.
Once that happens, I think investors will make a lot of money just by sitting rather than trying to trade. I think Indian investors need to rid themselves of the idea of flipping stocks over negligible increases. It is a sure way to the poor house and you will only make your brokers rich.
Q: What is the outlook on asset allocation?
Chokhani: Within equities, investors should have a basket of stocks which represent the four big money-making areas in India such as energy, consumption, exports and assets
Q: How does a viewer watching the show do it? Does he wait for a dip or forget about 200-300 points on the Nifty and just start an SIP immediately if you have missed out?
Kela: If you have missed out, then there is no choice. But start somewhere with a view, a perspective.
Q: Will there be significant new highs by Diwali next year?
Damani: It is difficult to say. In the first year of a bull market, indices do not post galloping gains. Those gains tend to show later. So it is really meaningless if the Index makes a new high by Diwali next year. But the bullish undertone of the market is all we are looking for along with adequate liquidity. The amount of stock that foreigners have bought in India has mopped up all the floating stock.
There has been very little dilution. So there is very little overhang in the markets. Outstanding positions are fairly low. It does not take a lot to move the markets nowadays and that is what is happening. There have been no IPOs, no QIPs and foreigners have bought so much of the floating stock that even domestic institutions will start feeling the heat of under-ownership of Indian equities. So it seems like just a good combination going in for the year ahead.
Q: Can you say with some confidence that the market has put some kind of a bottom in place?
Kela: I would say that. I don't see the market, in all probability, going anywhere near the bottom at least in foreseeable future.
Q: So a bottom is in place?
Kela: Yes, absolutely.
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