Markets seems to be in correction mode! What’s your opinion?
Markets definitely have some froth. Despite COVID 2.0 wave hit, which has dented the recovery so far, there is no dent in overzealous optimism. These are signs of Greed. Some correction is good to keep markets aligned with corporate health in reality.
Also, Oil prices are rising continuously. This is a reason for some rethinking. FIIs are withdrawing from other Asian markets also, not just India. In my opinion, 2% -5% fall should not be termed as correction. We call correction when it falls 10% or more. What we are seeing right now is “fine tuning”!
According to one report, Institutional participation is slowing down, while Retail participation is on a new high, and increasing. How do you see this scenario?
This is correct and retail investor behaviour (RETAIL) is worrisome. On one hand FIIs are pulling out for last 12 odd trading sessions, Retail investors are actively participating.
F&O participation by retail investors is rapidly going higher. People are taking loans to invest
Not just in India, but in US, Singapore and other countries too. We already know about meme stocks in US. For the first time in history of stock markets, social media platforms like Twitter & Reddit are creating herd mentality among retail investors. Generally, these are signs of Greed & Blind Investing. So, some shocks can be seen to these set of investors.
Rising fuel prices is bad for inflation and Indian economy. If OPEC countries do not increase the supply, then how do you see India’s economic recovery?
Various OIL supply reports suggest that supply will be difficult to come over next 1 to 2 years. Over Last 10 years, no new capex has happened to increase OIL supply. Many Shale OIL companies have closed or downsized their businesses. To increase OIL supply, massive fresh investment will be required, which is unlikely to come considering lack of ESG score.
So, it is a worry for sure. Government will have to find a way to ensure that Oil prices don’t become inflationary and counter-productive.
For this, they would need to cut down on their Oil taxes. Nearly 2/3rd of the fuel price we pay is Central & State taxes. If GST collection improves along with divestment revenue, then Government will have the cushion to reduce taxes on Oil.
What are the sectors that you are Long, and which ones you are Short?
Long – Infra, Small Cap, Energy, PSUs, Pharma, Discretionary, Real Estate
Short – FMCG
Neutral – Banks, Auto, Metals
For the time being, Central Banks of the World have given a reassurance that there will be no hike of interest rates in 2021. But, they also indicated that there could be a need to do the tapering sometime in 2022 or 2023. What do you feel about it?
Central Banks never give a specific date about their action. They don’t want to give shocks to the market hence start talking out probabilities. If they see the need to increase interest rates in 2021, they will do. They will not wait. However, ½ % or 1% rate hike may not impact much. Much of the companies in India are already deleveraged. So, it will not impact their debt servicing. But, yes, it may impact the credit cycle if interest rates are hiked sharply…say by 2% to 3%.
Sugar stocks are suddenly at the forefront. Do you possibility of re-rating in Mid & Small Cap space of Sugar sector. Also, till when do you see this bull rally in sugar stocks?
There are 3 key drivers:
1. Ethanol blending
2. MSP
3.Export Incentives
The biggest is Ethanol demand. The demand for ethanol by OMCs is likely to be around 330 Crore litres this year in comparison to 180 Crore litres last year. That’s a massive jump and can increase profitability by 2.5 times of the sugar industry as a whole. Since blending can go from 10% to 20% over next 5 years, we see sustainable growth coming for the sector. Dalmia Bharat Sugar (doubling its capacity of ethanol this year), Balrampur (Largest Player) can be good beneficiaries of this rally.
What is your take discretionary sector? Do you see demand coming back here?
I am positive for medium to long term. Due to lockdowns, this segment was badly hurt and has not come back to normal. Whenever normalcy returns and economy comes back on track, this is going to see demand boost. This has been seen in countries where vaccination pace has been good.
