• 5 months ago
Transcript
00:00 Let's get in Ravi Dharamshi, founder and CIO of ValueQuest Investment Advisors on the phone line.
00:04 Ravi, really appreciate you taking this time out and joining us this morning, but exciting start
00:08 to the day. How do you think about what's next, short term, medium term, long term?
00:14 Hi, Neeraj. Good morning. Good morning to our viewers. Thanks for having me. I think, see,
00:20 the biggest takeaway for investors is that India has since independence always succumbed to
00:28 fix and start in terms of reforms, in terms of moving ahead and progressing. So this time around,
00:34 a particular government has gotten three terms and is probably going to get a third term in a row.
00:40 So that, I think, paves the way for doing some real long term stuff, reforms, and
00:45 really thinking from a 50-year point of view, 100-year point of view, and not in terms of
00:50 next five years of winning the next election. I think that is the biggest positive takeaway for me.
00:57 And honestly, as an investor, Indian investor has been very, very aligned with the market.
01:05 But I think the missing piece has been the foreign investors, and hopefully,
01:09 they will join in the party too.
01:11 Ravi, so we've opened GapUp, but independent of the levels, would you be a fully laden investor?
01:20 Or let's say if you had cash, would you be deploying that starting immediately? Or are
01:24 you waiting for or biding your time for some dips, if you will?
01:27 Luckily for me, we have been kind of deploying in the market even prior to this.
01:33 But yeah, now it gets a little tougher because you'll have to start chasing even more.
01:39 But if the funds do come, I am definitely not averse to deploying. Yes, you'll have to work
01:47 hard and find spots where the relative value is there, or where the entire next two, three years
01:54 of future is not yet baked into the numbers. So you'll have to work harder in finding those
02:01 opportunities, but I would deploy.
02:02 Ravi, I like that line, "luckily for me". I'm wondering who the unlucky ones are today.
02:08 More importantly, fortune favors the prepared mind, right? He's modest,
02:12 but he's been brave enough to deploy when a lot of people were sitting on cash.
02:16 Yeah, so honestly, I mean, I think I won't say I took a call or I'm brave or anything. I think
02:21 rather than apply my brains and fringe portfolio making on a particular event,
02:27 we have to think long term. And from that perspective, I think we were very clear that
02:31 Indian macros have never been so good. Micros are also following up. Why wait for an event?
02:36 Yeah, so that was the big bet on India, irrelevant of what happens in these elections.
02:42 And I think the big trigger over here for the kind of gap up that you're seeing
02:47 is that any uncertainty which was being seen in the last week has been wiped out.
02:52 Look at the India VIX, 18% down. India VIX is at 20.13. Nirav Sheth, joining in,
02:58 CEO Institutional Equities at MK Global Financial Services. Nirav, great to have you
03:02 on this very, very exciting morning. I mean, the screen's looking spectacular. I think
03:09 one for the records, really. And you're seeing that big push there. The question is,
03:15 how do you move ahead from here? The internal debate has been that, OK,
03:21 you will see some profit booking. At what point do you see it? And what do you do at this level?
03:29 Thanks for having me on the show. The question that you asked me is something that
03:38 is true for last week, a year back, 2014, maybe even 2004. So even when you had a complete
03:47 change in the government and the markets kept on 20%, that was the time to go and buy one of
03:52 the biggest bull markets. So to me, the only alternative is that if you are not in the Indian
04:00 equity asset class, what are the alternatives? And I believe that you don't have a great
04:06 alternative anywhere in the world. I've been saying this for some time. You have got the
04:11 right stacks set up for India to end up being a bubble market in the next year, four years.
04:18 So Nirav, just to that, I take your point. It was a little evergreen type question of mine. Give me
04:25 a chance to revise it. Yes, that question has been always there in the Indian markets, what you do
04:31 in 2004. Also, that question was there last week. Also, the question was there specifically. Let me
04:37 come to specific spaces. If I were to look at the PSU stocks, defense stocks and the valuations they
04:42 have run up at, an investor who is looking at their portfolio this morning and feeling very happy
04:48 also has that question, what do I do today? After this kind of run up, can you sustain above 23,000?
04:53 We know now, as in the market has completely priced in what we are likely to see on June 4th
05:01 as well. Right. So I'm not even looking at what's going to happen tomorrow. Maybe the numbers are in
05:08 line with what the exit polls are predicting. Maybe they could be higher or lower. Frankly,
05:12 anything, once you've got a full majority, I think I'm agnostic in terms of how the current
05:17 political dispensation is going to look at policy reforms going forward. To me, the key point is
05:22 that you started on a 6% growth rate, you have hit an 8% growth rate. Your core inflation today is
05:27 lower than what is there in the US. I don't think that we are getting a sense of where we are heading
05:32 as a country. We had a big problem with current account deficit. You are at a stage where in the
05:39 next one or two years, you will sort of get into a current account neutral situation. So you need to
05:45 look at equity market in context of where my macroeconomic variables are moving. So I suspect
05:51 that you are not going to get reasonably good returns in equity market, but even in the bond
05:56 markets because your interest is going to head down over a period of time. And that finally
06:00 determines the valuation. Now, coming back to, obviously, there are pockets of expensive
06:06 valuations like defense and maybe some other stocks. So what do you do? If you think that the
06:12 story is great, if you think the valuations are great, then you try and play with the size of the
06:17 bet. So I can be neutralish or I can be underweight. But you still need to be a part of that,
06:25 you need to be invested in the stock because which is where there is longevity of the growth.
06:29 Let me give you an example. Let's try and put this in context of why this is happening.
06:34 From 2010 to almost about 2020, you had markets rewarding a particular set of
06:42 investments, which was largely consumer driven, high ROC, consumer stocks, stuff like that.
06:49 And when the market incentivizes that, you got investment that will follow that. So you got
06:54 Jindals setting up a paint plant, you got Billas setting up a paint plant, who set up infrastructure
06:59 in the country? Right? Everywhere in the world, we are short power today. Someone has set up
07:06 utilities. And therefore, what we are seeing right now in terms of utilities is that the market has
07:10 to have an adequate incentive structure for promoters to go and say that I'm going to invest
07:15 in these new sets. That is what is happening. So this is capitalism. I'm not at all surprised.
07:22 Ravi, hi. It's also Samina joining in. Big global brokerages from the Jefferies to the
07:28 Canterfields, Gerald have recently touted Adani Group stocks as a proxy to play the India growth
07:35 story. And the sharp rally on some of the stocks is a reflection of that. Do you feel that there
07:41 is still significant investor wealth to be created amongst these stocks, especially in the backdrop
07:46 that fundamentals of these companies have also improved significantly? No. So clearly, if the
07:54 exit polls are right, and if the government is coming back, I think a lot of the performing
08:00 sectors will perform even more. And that includes infrastructure, defense, railway,
08:05 all those kind of stocks are going to continue to perform. Having said that, the margin of safety
08:12 over there has definitely reduced dramatically. But I don't see a reason for those stocks to come
08:17 down in any near term thing. And I think the growth will get stronger. I do expect some kind
08:24 of change in the way the market is performing at some point of time. Because I think the central
08:29 government is probably going to slow down on its own capex and private sector and state governments
08:38 are expected to pick up the gauntlet over there. So the type of companies that do well
08:43 might change. It will not be based on what the central government is doing,
08:48 but more on the private sector. I like your thoughts on this one too, because
08:53 you can't help but see the kind of rallies of these counters have seen fundamentals have improved.
08:59 Samina, I think there's a small audio thing, maybe your mic has fallen, but Nirav, the same
09:03 question to you really, and you were just starting to answer that. Could you give your thoughts?
09:08 Yeah, so my view is that, you know, the execution that we have seen in Radhani group has been mind
09:14 boggling. I mean, I'm surprised and I don't think that given the fact that there are always
09:19 valuation concerns around some of the stocks, I don't think investors have looked at it very deeply.
09:25 And please don't get me wrong, I'm not even advocating, we don't have the stocks under
09:29 coverage. But if you look at what they've done, for example, in the renewables,
09:37 they've got close to 2 lakh acres of the most appropriate land bank for solar.
09:43 They're backward integrated in not only in cells and modules, but they've also started,
09:48 it's already commercially operating. We are talking about Kignor, they want to get into
09:53 Polysilicon. I don't know how many guys are aware that they've already set up a 1 lakh ton of copper
09:57 refinery. And just look at the scaling scope of the work that is happening in the airports.
10:06 The execution is at a different level altogether. So there is a lot of optionalities in that group.
10:11 And I think that only one group which really invested in India's infrastructure in the last
10:18 five years has been Adani group. And the world opens up because that is where the entire thrust
10:24 is going to be. Where is the capacity to do large scale construction? I'm just giving an example,
10:31 you know, we've seen the PM going on record saying that you want to pitch very, very strongly for
10:36 Olympics in 2034. Now that is going to be massive investments. As a country, do we have the capacity?
10:44 So there are some groups who have invested in setting up their capacities and at a world class
10:50 level. So I'm keeping the variation aside. I'm just talking about the fact that some groups took
10:58 a different route in terms of where you want to invest for the next 20-25 years.
11:05 A lot of the groups went after the consumer facing businesses.
11:09 What is going to play out in the next thing is going to be entirely different.
11:14 Okay. Ravi, understand we have to let you go. But one final question really, where is it that
11:22 you now put incremental money at work? Is it, I mean, would you bet at some point of time,
11:28 consumption will make a comeback? Would you bet on policy push continuation and therefore,
11:34 some of the beneficiaries which have gained quite a bit but are expensive
11:37 might still become better? How do you now allocate incremental capital Ravi?
11:41 So my incremental money obviously will try and look for areas that have not performed.
11:50 And especially I think large private banks or consumption related areas. These are the ones.
11:56 Having said that in the next few months, can the momentum continue in the stocks that
12:01 are doing well? Absolutely they can. But my prism is three to five years. And from that three to
12:07 five years prism, I find investing in some of the performing companies a little bit of risky.
12:15 Am I still holding on to those companies? Yes, I am. But I'm not putting any more incremental money
12:19 on them. Okay, Ravi, understand we have to let you go. We'll let you go on that note. Thank you
12:26 so much for taking the time out and being with us today. Really appreciate your time.
12:29 I have one question with Nirav. Nirav, you know, I was listening to what you were saying about how
12:36 private sector now comes to the forefront and really the trick over the next few sessions,
12:42 and I would say not just next few sessions, next few weeks in this market is going to be
12:47 to identify the new pocket of growth. If you're looking at a situation where you have policy
12:52 continuity, the same kind of push to the private sector, etc. Where is that growth? Where do you
12:58 see the clues there? So for example, we were having a conversation this morning that climate
13:02 change and tackling climate change will become a huge theme for any government, including Indian
13:08 government in the next five years. You're going to push down on Make in India, PLI and the
13:13 participation of the private sector. Do you think it's very important now to identify those new
13:18 pockets and what have you been seeing? Nirav, can you hear me? Yeah, I can hear you right now. I
13:28 missed the last part of the question. Yeah, so the last part of the question was essentially that
13:33 what are those themes in your view? Where are those stocks? What are those themes? Because
13:37 right now someone has to spot the new ideas. The PSCs, defence, rail are already there, priced in.
13:45 If private sector is going to take the forefront, then where are those new ideas coming from?
13:50 Nirav? Right in the markets, right? But I've seen a major...
13:58 Can you start that? Yeah, you kind of froze there for a second. Can you start that again, please?
14:03 Not. All right, we have a bit of a glitchy line over there, but I'm really interested in seeing
14:14 that story because that's how you will need to spot the winner, right? Because the themes that
14:19 have been going on for the last, I would say year, year and a half are there very much. They will
14:25 continue. Public sector companies will become stronger. Their balance sheets, healthier,
14:29 your infra, policy push, road, railways, defence, etc. But what's next? What's new? If they have
14:36 said time and again that AI, EVs, climate change, all of these areas are going to become big themes,
14:44 becoming atmanirbharan, semiconductors, APIs. What are the stocks that you then now look at
14:52 as the next next run? I mean, if you don't go that far, consumption, rural consumption,
14:58 that could be one space that may start seeing some traction. Of course, those numbers haven't
15:02 looked very promising in terms of GDP data. But if you see the government doing a little bit of a
15:07 push to spruce up consumption, then I think rural could be one more theme that the markets may start
15:12 constructively looking at. But all in all, what's interesting, and I think this is what we talked
15:17 about, guys, the Nifty saw a start at 23,340 with 200 points off the day's high points. So profit
15:26 taking has kicked in as expected. Trade will stabilize through about from now till about 11.30,
15:33 12. And you may see a return of euphoria in the second half of the session. But there is a little
15:39 bit of sanity that's now returning. The euphoria is settling down. PSU banks are the star trade.
15:44 So is real estate. So is defence. Everything is moving up. But I think the markets may now give
15:50 traders an opportunity to come back in and buy for the second half of trade and maybe potentially
15:55 even tomorrow. So watch out for stocks. There are lots of stocks that are off the day's high points.
15:59 If you're a short term trader… I mean, it depends on what you call sanity. We're still 600 points up.
16:04 So… We are. And I mean, stocks like Adani Enterprise are at the record high. So if you
16:08 can enter these counters at the get go, but beyond Adani Group, stocks are a whole host of other
16:13 names. And Nifty itself was at 23,340. That was an intraday high. We're slightly lower now. So
16:20 we've gone up about 150, 180 points from there. Actually, do we have any of our technical guests
16:24 with us? No, but we have Nirav Sheth. So I think we should ask him.
16:28 What do you think? I know this is, this market should and is best divided between a tactical
16:34 trader and an investor. We know what investors should be doing, right? Staggered investments,
16:39 be disciplined. That's when you create significant wealth. I don't know whether you're comfortable
16:45 answering this for me, but we did get a gap up, a massive gap up in the first few minutes. We
16:49 made that high of 23,340. We're 200 points off that now. Do you feel that now could once again
16:57 be an opportunity for bulls to maybe initiate fresh longs, maybe covered option strategies
17:03 between now and today? Or do you feel like it's buy the euphoria, buy the exit poll and sell the
17:08 news and the markets may go back to business tomorrow? So, you know, it's usually difficult
17:18 to take short term calls, but I am of the view that the markets are gradually going to rise
17:25 pre-budget anticipating what the government is going to do. They'll probably stall over there.
17:31 I'm then probably looking at a longish spell of time correction more than anything else.
17:36 Till the time that market is ready to try and price in a rate cut. And then, you know,
17:41 when you start looking at, you know, you get more clearly about FY26 earnings than FY27 earnings.
17:47 So, budget, I think, will be crucial in terms of the government trying to lay the direction for
17:52 the next five years and 10 years. And I suspect that we are likely to have the next level of
17:59 reforms on the indirect axis, right? And without trying to get away from the fiscal consolidation
18:07 that are going to move forward. And that could be a big, big trigger in terms of how the markets
18:11 are going to look at. Nirav, just to, I think we had a patchy line and I don't know if you
18:15 could hear my question. Let me come back to it. I was talking to you about what new themes that we
18:19 can spot of what is expected in term three. I mean, what is already run up, what is already
18:26 clear in terms of policy push is there. So, your rail defence, you know, improving balance sheets
18:31 of PSUs, etc. That theme is there. What are the new areas that you are looking at right now?
18:37 So, I think if you just read what Mr. PM Modi has written in one of the editorials today,
18:44 size, scale, scope and standards, right? So, what do you want to do? You want to do it at a
18:50 big, much, much bigger scale. I think that you lagged in terms of electrification.
18:54 India spends about $100 billion in oil imports. You need to get that supply chain right. So,
19:01 I think that'd be a massive, massive focus in terms of how do you want to set up that ecosystem
19:05 for electrification in the country. You mentioned about climate change. I call it energy transition.
19:12 Serious work has to happen in the green hydrogen and then all the way into solar and wind turbine
19:18 manufacturing right up to the mining stage. And like I just referred to, I think the critical
19:26 thing is that you also want to uplift the entire manufacturing in the country.
19:30 Nirav, on a portfolio recommendation level at this stage, where we've seen,
19:39 whether or not… I don't know whether I'm being audible or whether we are…
19:45 We can hear you, Nirav.
19:47 Sure.
19:49 Nirav, go on, please go on.
19:51 Yeah, so I was just saying that to me, a critical reform could be whether you can reduce
19:58 the revenue neutral rate for GST, which is let's say about 16% to about 12%.
20:04 That is disinflationary. That does exactly the same thing that happened to our direct tax.
20:09 Glitchy line with Nirav. We need to fix that so that we can hear all his answers
20:18 correctly. We'll try and get that in place. Now, while we do that, just wanted to go through this
20:24 very interesting piece my colleague Mahima sent me actually. She's put together top five stock
20:29 picks. If you see results tomorrow, like what the exit polls are indicating, and that's what the
20:35 market is celebrating right now, still about 600 points up, 582 points up on the Nifty.
20:41 So now a slew of brokerages have come out with their top picks. So number one of those picks
20:46 is Adani Ports, which has been supported by… I mean, so this is a call by Citi and Motilal
20:51 Oswal because it's projected to benefit significantly from infrastructure and logistics
20:56 development. Number two is Coal India. That's on Motilal Oswal, Philip Capital and Jefferies list.
21:03 And they all put out their reports on pre-election. Coal India is anticipated to perform well with
21:09 continued focus on energy and industrial growth. Number three is ICICI Bank. Now,
21:15 I found that interesting. Motilal Oswal, Philip Capital have put this out on their list.
21:20 ICICI Bank is viewed as a strong player in the financial sector, expected to benefit
21:25 from political stability and sustained economic growth, the private banking space and all.
21:30 But ICICI Bank is one of the favourites. SBI is the other one. Motilal Oswal and Philip Capital
21:36 have both put it on their list. They say SBI is looking like it will reinforce its dominant
21:42 position in the banking sector. And then there's Larsen & Toubro, endorsed by Motilal Oswal and
21:48 Citi. L&T stands out in the industrial and infrastructure sectors as it is expected to
21:53 thrive with ongoing and new projects. So, there are many actually. And in fact, CLAC had a list
22:01 of 54. But the top five that we picked, which have brokerages going for it and all of them actually
22:08 doing very well today. PSUs are trading very, very firm. Tamanna, even OMCs this morning,
22:13 we look at HPCL, it's up 8%. BPCL, IOC also doing extremely well. 96% of the NIFTY 500 stocks are
22:23 trading deeply in positive territory with a whole barrage of broader market names that are actually
22:29 doing quite well. 97 of the 100 mid-cap stock gainers are coming in from the PSU pack. So,
22:35 that is the kind of breadth, the euphoria that the markets are seeing. Of course, what we saw on
22:39 Friday was only the Adani Group names do well. But beyond that, the rest of the market, in fact,
22:44 those Modi stocks, like they've been called, and HAL, BDL, BEL did take a little bit of a break,
22:49 maybe potentially giving investors and traders an opportunity to jump back into these stocks.
22:54 Bharat Dynamics, which has been the star of the last couple of months, is probably lacking
22:59 slightly behind the gain of only about 3%. But is that an opportunity to buy? And that's what we
23:04 should try and understand from our trading and fundamental analysts. BEL is up 6.5%, 7%.
23:09 You've got, let's actually pull a Vodafone idea. I want to pick this one up because it's been,
23:14 while it may not be an election theme, the stock has been seeing enormous amount of buying interest
23:19 over the last couple of weeks. On the back of this, your brokerage upgrades, another 4% being
23:23 added, getting closer to 16 rupees on Vodafone. Actually, Vodafone is kind of an election theme.
23:29 If that is the government's policy. In the sense, you have the government is now a serious
23:34 stakeholder in Vodafone. They have a big bill due in FY26. And it's up to the government to
23:41 make it easier, maybe convert some to equity. The direction so far in term two has been to allow
23:49 Vodafone to exist and survive. So in that sense, yes, I would say. Nirav is back with us. Nirav,
23:54 I'm going to do a quick audio check with you. Can you hear me clearly?
23:58 Yeah, I can hear you. And then you know, I don't know when I end up losing you. But yeah,
24:01 I know we have a we have a bit of a patchy line. Nirav, just just just before just before we let
24:08 you go, you know, we need to have your take on what are the sectors and themes to look out for?
24:16 What would be your topics and your advice to people today who may have hedged? No one knew
24:22 exactly what the exit polls are going to say. They've beaten expectations, frankly.
24:26 What is your advice to those who chose to hedge today?
24:28 I think, you know, I always believe that you should look at equity from a three, four year
24:34 perspective. For whatever it is worth, I don't think India has ever had a negative rolling three
24:40 year lifty return ever. Right. And this is through successive governments and through
24:45 multiple challenges to pandemic and GFC crisis. So that's the inner strength of the Indian economy.
24:50 You do nothing, India grows at 5%. If you're a great leader, you can grow at about 8 or 9%.
24:55 Right. So I am very, very bullish on the Indian macroeconomic situation. A lot of this is also
25:03 being in the right place at the right time, right in terms of the geopolitics in terms of how it
25:08 is turned out. You don't have to necessarily figure out what you want to what you're going
25:11 to make in the next one month, six months, whether you want to buy today, tomorrow.
25:15 No one has the right answer. Right. Should equity be a significant portion of your asset class in
25:22 terms of investment? The answer is unequivocally yes. It is difficult to try and create alpha.
25:31 So for normal investors, mutual fund is a way forward. Outside that, to a second question in
25:38 terms of what are the sectors, you know, infrastructure, and you know, I believe that
25:45 this is a big deal. So you know, you've got EBC companies, you've got pumps, you've got
25:50 engineering services. I'm bullish on real estate. I'm bullish on banks. And you've got new sectors
25:59 coming in, right? So now got people investing in data centers and stuff like that. So but like I
26:05 said, I'm not making a case for any one particular company. We do need to keep in mind that the
26:13 investments, you know, the investment profile is changing, right? It is not no longer only
26:19 copper and aluminum and cement. A lot of investment is happening in digital infrastructure, which is
26:25 very, very intensive. I talked about energy transition, I talked about electrification,
26:32 stuff like that. So, you know, some 300, 400 companies have got restated in the last four,
26:36 five years. So India has a big, big deal of, you know, new companies.
26:41 Nirav, I think we're again having a little bit of Apache audio with Nirav Singh, but he was talking
26:50 about how there are newer sectors now, that markets can of course, the participants in the markets can
26:55 of course, go out and trade and make money in. Remember, you have a newer themes that are
27:00 emerging, but most people believe that the old economy could really truly be a good play,
27:06 even today, if you want to be an investor in equity markets.

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