We are seeing the markets across the board seeing a lot of nervousness. Do you think that it is likely to abate or in the run up to the budget there could be an even heftier sell-off?
It is difficult to make out how markets will behave over the next few days. As you rightly said, what we have seen clearly is there is capitulation that is happening there on the back of this event related to Adani Groups stocks and we have a Budget ahead of us over the next two-three days. Be that as it may be.
I believe that investors who have cash at their disposal should go out and invest in these kinds of markets. For any long-term investors, these are the kind of days where you can buy some of these great high-quality businesses at prices which are 10%, 15%, 20% lower than what they otherwise were. So to my mind, it is a great opportunity for investors to start nibbling in, buying into some of these businesses. Nothing materially has changed fundamentally to the adverse as far as the whole India story and outlook on markets are concerned.
So you are saying that this is a good opportunity for investors to buy into these stocks? What qualifies as these?
I meant good quality businesses. As investors we focus on investing into good quality growth businesses.
From the financial space then, say private sector, largecap financials?
Oh yes. The largecap private banks in India including
, and . All of them had very good quarters in terms of the results they declared and the outlook for the sector remains pretty good. I do not see any of these large banks in India having a very significant exposure to Adani Group in that sense.
So to that extent their fundamentals are getting impacted. The banking sector per se has done pretty well in terms of the stock price behaviour and returns over the last six-nine months as a result of which, it has been a bit of a crowded trade and maybe the spill over of market nervousness is impacting these stocks.I think that Friday was a good day and over the next few days, any investor with a time horizon of one year and above can go and buy into these stocks because these companies are doing well and will continue to do well. The banks clearly stand out in that sense because they are down pretty sharply today.
Apart from that, we also like autos as a sector. We like which had phenomenal results a few days back; came out with great results the day before yesterday. One thing which was impacting the sector was shortage of chip supplies that is gradually easing and demand continues to remain strong. So we like autos and again we think it is a good time to buy into some of these auto names, take a medium term view, at least these are good prices to buy into some of these auto names as well.
Would you be touching midcaps whenever the froth settles down. If so, what would you like to buy?
For long-term investors like us, it might sound a bit counterintuitive but on days like this, when there is blood on the Street or capitulation, we get these opportunities once or twice a year. For someone like us who is a permabull in India, these are great times to go out and buy good businesses – be it largecaps, midcaps, smallcaps and own them for a two to three-year time horizon which is a typical investment horizon.
Obviously the selloff in midcaps could be slightly higher because of low liquidity or volumes but for us to buy some of these businesses which we like, in any which case, we would have bought them and to buy them today at a price which is 5-10-15% lower, is a great opportunity.
Capitulations like these are great opportunities for long-term investors and we cannot afford to miss these kinds of days.
So what within midcaps is looking attractive right now? Where would you add positions to existing ones?
I cannot talk about specific names because we continue to buy these names, but I can give some direction. We like some of the high quality midcap banks, some of the midcap pharma companies because that is one sector which has not been beaten down over the last 18 months and we are of the opinion that earnings in the pharma sector are clearly troughing out from next year onwards. The sector will show growth so we like pharma. We like some of the auto ancillaries because if auto demand continues to remain resilient, then auto ancillaries are a big beneficiary of that.
Of late, we have started nibbling into some of the midcap IT companies as well because over last year, those stocks have corrected quite a bit and as things are shaping out in the US, probably the expectation is that there will be a mild recession in US and global companies are not cutting down on their IT spending which effectively means the midcap IT companies which have been beaten down very sharply probably will do much better this year. We like some of the midcap IT companies as well.
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