It was a crazy Monday. Are we in for now more volatility or has the storm come and gone?
Ajay Srivastava: Well, unfortunately, I cannot say the storms have come and gone because the storms is what brings in the fresh air in the market and storm is what cleans out the deadwood from the market. It is a great thing to have corrections because two things happen. One is the complacency in the system disappeared that everything is going to go up and you do not need to plan your portfolio, you never need to book profits, you never need to look at your stock at all, I think that complacency is now gets a one root check that listen guys you need to look at your portfolio. Making money is not all that easy in the market. You need to select stocks, be with them, add and when time has come to sell the stock as well. It is not necessary to just keep adding up the stocks. So, we will see more volatility for the simple reason that in India we are at a much more bigger crossroad that while there is a clamour for interest rates to go down, you seen what happened to the bank, their ability to find money is becoming very difficult for them.
Unlike in the US, we are in a different conundrum altogether. There is scarcity of money with the banks while there is pressure on interest to go down and which forces a saver, to go more towards equity market, not less. So, yes, volatility will continue. I think new themes will emerge in the market. But the key fact is, booking of profits is again coming back to the table. Did you manage to book some of your profits when the going was good in momentum stock? You may get the same price back but that will take a lot of time for some of the shares to recover.
The list of avoid includes insurance and online companies. Now, insurance has just about started coming back, online companies have made a comeback with the exception of Paytm. Let us talk about these two sectors. Why are they on your avoid list?
Ajay Srivastava: I think three things. One is, we are so underpenetrated in India on insurance that it is ridiculous compared to any standard in the global, that is one. Number two, the regulatory environment is so beautifully structured that you do not see any new insurance companies coming up. So that is life insurance. Now, some of the banks which have got insurance companies have a ready-made customer market, who they go and sell their products to. So, unless something dramatic happens in regulatory scenario, that is one.
Number two, the biggest meltdown which has to happen with all the ULIP policies is already past us. These are genuinely good policies which give good income to the most of the companies.
Third is that as interest rates go down, their portfolios will appreciate quantitatively and there were bonuses and the performance will improve. It is a market which is ever expanding, where competition is very limited in life insurance and income is almost guaranteed in a manner of speaking and with less dependence on ULIPs, volatility is less.
All four tell us that it is a great place to be at this point of time. The same goes for general insurance. If the PSU insurance companies walk out to general insurance market, can you imagine how much is opened up for both health and general for the private sector? Both these sectors are just tremendous, safer opportunities. They may not give you 10 baggers but they are certainly compoundable at 20-25% return if that is what you are happy with and you should be happy with that. It is a clean, comfortable sector that is very under-owned; that is the best part. So, by the time the trade happens, like we saw in defence, when people start to come in, the real expansion of multiple happen. It is very nicely positioned, nicely structured, good valuations, under-owned in the market. It is a very sweet spot.
So, if insurance is safe, what is looking unsafe right now?
Ajay Srivastava: As always, there is a risk on the PSUs, as always. The OMC stocks are the riskiest. It is a real gamble. If you need to gamble, do not worry about option, you are going to gamble in say, which the trend is and what is going to happen to the OMCs next quarter? PSU stocks by and large are going to have a bigger problem.
Number two are the chemical stocks. These are overpriced to a point where I do not understand how they are priced in terms of PE multiple and growth. So, two sectors. I would like to add defence, but I would just say the scarcity of stocks, unless the government sells a stock big time, there is no liquid floating stock in the market at this point. I would have put defence in that category but only because the floating stock is so little and everybody who sits on it does not want to sell means that volatility is much less in those stocks. Prices may correct but at every correction, we see new buyers. So, I would not add it there.
But I would simply say that, chemicals is one place where over multiples are being paid for a very mediocre kind of a growth scenario.
Let us go back to the global picture. The yen carry trade scared the wits out of everybody yesterday and today looks like it is history. So, can a large carry trade impact just last for 24 hours? I am just trying to understand that what is the right way of understanding how much of unwinding is over and how much is left. Will it continue?
Ajay Srivastava: It always happens that the leverage positions create volatility in the market and when leverage gets cut, there is no way to retrieve it because you are not able to borrow more. Any option trader would understand that when the time comes and the margin is called and you are not able to pay up, the system automatically chops them off and sell the position. All these traders, global hedge funds that we have seen, do not hesitate to cut their trades. In India, our mentality to see wait it out; there it is cut and burn. Either go all in or out. It is a mentality, it is nothing to do with the fundamental. That is the way they always work in life.
If an event happens, they exit. Exit means exit and we have seen it happening so many decades now that these people uncaringly cut their position because for them, booking that profit is more critical than the future anticipated gains. They run from year to year, their bonuses and their profitability and they are reporting to investors.
So, unlike most of the other investors, these funds are literally dependent year to year on showing a performance and more important liquidity. There is no way they can put in liquidity. If I have a problem, I can just take my fixed deposit and put in the money as a margin, they do not have the liquidity. So, they have no choice but to cut.
As for the answer to your question, this will continue. It has happened many times. I do not think we have seen the end of it what we have now seen assurance in the market that yesterday all the right noises were again made by the central bank saying we are not going to let the equity sink. So, we are back to the same game.
The market will do the thing. The Central bank will come and say, guys, do not worry, keep investing. We will look after your interest. We are back to the races.
Can I say that what we saw yesterday in terms of the global market selloff is history now? It is time to move on and look at what is in India rather than getting worried about Fed, Japan, Bitcoin, gold?
Ajay Srivastava: I sometimes tell my people that knowing a lot is a lot worse than knowing less at this point of time. If I look at all the risk in the world, I will never invest money at the end of the day. I might just put in a gilt fund and be done with it or whatever it is. Things can happen. I think we are looking at volatile times in the US. But what we have seen so far is that Indian economy being so insulated at this point of time in terms of export, imports, connection, global, etc, that we have been able to weather it a lot better and will become better and better because FII holding is now lower than domestic holding in the market. Their say is lower.
Most of the PEs we know of are exiting their position in India. If you look at net-net, you will be horrified at the kind of exit we are seeing versus the entry into India of PE fund globally. Globally, PE funds, liquidity is also down at this point of time. So, people sitting with money from abroad have lesser and lesser role to play in Indian equity markets. Good in a way, bad in a way, whatever you want to call it.
The fact is today FIIs cannot influence the way it happened in the past. It is going to become much less in the future and as I said every month no matter what happens, your money which goes to PF, 15% of that has to go to the ETF. Market can be 500 point down, 5,000 point up, or 2,000 down, PF money will go into the ETF no matter what happens. Now that is a big stable platform of buyer in the market, irrespective of global conditions. So, we are stable.
Focus on what you missed out. Why are you focusing on going down? Every time I meet people on the flight, they say, oh, you know what? I missed out. Guys, you missed out. You had a chance to get in again. Do not blame the market saying, do not give me a chance. It gives you a chance all the time. On 4th June, it gave you a lovely chance. Yesterday, it gave you a beautiful chance. Do not ever say, I missed out.
Now, what we were debating internally yesterday and perhaps we spoke about it also was that look 4th of June you got a great chance, but that was a local event. You got another chance on 23rd of July, that was on the Budget day. But yesterday, it was a global factor. Does it make sense to buy the decline because unlike the June or the July event which were local in nature, this is a global event. Should that basic strategy be still to buy on a bad day?
Ajay Srivastava: I think it should be. See, what is the event? Whether you can call it recession fears in the US, whether you can call it carry trade, whether you can call it the sudden interest rate pressure there, a number of factors are built in. It cannot be one factor, that is one.
Number two is, if your stock picking is fundamentally good at this point of time, let us take what happens to an airline. It announced that I am going to do business class. They do a good job in what they do. Nothing happens to that company. They are doing a good job day in and day out and Indians are expanding, traveling, etc, etc. Now, yes, some volatility, some pricing multiple may correct itself over a period of time given the global volatility. What will happen with good companies, perhaps is that the multiples may correct. You might have entered a little wrongly, but then if you have got the wherewithal you can keep averaging down, but your ability to enter good stocks comes on such days.
It is an amazing market. You could buy the same stock on a filter day before yesterday, in a lower filter yesterday, and you were not a buyer there. Now, that tells you that you cannot dictate the market. You got to go with the stock that you want to buy and if you were willing to buy it 24 hours back at a circuit filter, you must be convinced enough to buy it next morning at a lower circuit filter or you are just gambling in the market and not investing.
Investors would not hesitate to buy a good quality stock when a market presents its corrections and markets can be whatever they can be, but if you get a chance to buy the stock do not hesitate. These events will happen. Interest will go down, interest will go up, recession will happen, recession will go down. Good companies carry on. Look at the last three years; companies have given three to four times, largecaps, three to four times returns to investors, did not happen because you did not hold on to them.
It did not happen because you did not add on correction. It happened because you responded to the company, not to the market. I would still urge investors. Many of the things will happen in the US, let us see who becomes the president, what happens? Bangladesh had an upheaval just now. How many events can you factor into investment portfolio? You can create complexity for yourself or buy a good company and sell it at a good time and enjoy a good life.
If you are not enjoying a good life, if you were tense for the margin yesterday, I think you are doing disservice to yourself in any market scenario. Were you happy yesterday? Did you enjoy the holidays? Do you have money in the bank to spend on your children? If you tick those boxes, international market does not matter. What matters is improvement in your life and that is what market is all about, improve your life, not maximise returns.
