Packaging Film Space: Exploring Growth Potential
Transcript
00:00Hello and welcome. You're watching The Chartist on NDTV Profit. I am Magan Vakil and in this
00:15show we try and, well, get and try and decipher long-term trends, potential opportunities
00:22when it comes to Indian markets, largely based on what the charts are telling us. Today is
00:28our first show of this particular series and joining me for this one is Dr. C.K. Narayan.
00:35He's the founder of Neotrader. Mr. Narayan, thank you so much for joining in. I reckon
00:43that it would make sense for us to take stock of the benchmark indices right at the top.
00:48What you're making of them, where are they currently and where do we go from here?
00:53Alright, thanks for having me in and happy to be part of a program that takes it off
01:01the beaten track that charts are purely for the short-term or intraday and here we are
01:07going to talk a little longer term and that has been more my area of focus. So let's look
01:14at the index from what the short-term is saying about the long-term. Well, you know, we can
01:20sum it up in two, three ways. First is that the market is absolutely not interested in
01:25going down. Yes. We had election results that took toll on the markets for a single day
01:33and then we pulled up to a new high. After that, one of the most feared things for the
01:37market came about which is this long-term capital gains and then the finance minister
01:43laid it on a little more by, you know, increasing the short-term also and adding STD increase
01:49for good measure. Absolutely. The market simply shrugged it off again. So if two of these
01:54biggest things, you know, BJP losing the election or this long-term capital gains or any kind
02:01of tax for that matter are not willing to send the market down, then it is very evident
02:07that this market has absolutely no interest in doing so. Right. In addition, we have all
02:12this ongoing stuff. We have been having a war in the Ukraine for about a year and a
02:17half. We have these skirmishes coming out of the Middle East every now and then and
02:22earlier all this used to spook the market a hell of a lot. Yeah. But those things have
02:26simply been brushed into the kind of background. So again, you're not having anything which
02:32is spooking the market in any which way except for a day or two. Right. In that context,
02:37we have to think that the long-term is steadfastly up in which case every dip that you get in
02:44the short term is something that is to be used for getting into the market rather than
02:48think about, you know, the markets going down, etc. Right. Recently, we had the markets going
02:53down with a gap with that scare from Japanese markets which everybody and their uncle were
02:59talking about carry trade and I'm sure 90% of the people have no clue what a carry trade
03:04is all about. But the market went down on it. So everybody's about carry trade. Yeah.
03:09It went down in with a gap, didn't recover for about 7-8 trading sessions. But in the
03:14last couple of sessions, it has kicked up and pretty smartly too. Right. So it seems
03:19that we are returning to business as usual. And now, of course, the much awaited event
03:24would be a breakout past 25,000. Right. Which will once again get the juices flowing. Right.
03:30Mr. Narayan, you know, I want to talk about fund flows at the moment. Usually, when we
03:34see such sharp rallies, strong rallies, you usually have the support of foreign investors.
03:41That's been lacking because if I consider the kind of inflows that we've seen on a financially
03:46or to date basis, it's barely $600 million on a net basis. And we've seen markets rally
03:53despite that. Do you think that these investors are perhaps waiting on the sideline to wait
03:59for a correction? And do you think that that could eventually be something that could provide
04:04the next leg of rallies? Well, I think everybody has been waiting around for correction. And
04:10the fact that all corrections are getting bought into, you know, however limited they
04:15have been, is proof enough that there is money waiting at the lower end. Now, where is this
04:20money coming from? Definitely not the FIs. They come in and do their stuff periodically
04:24now and then. But then, like you mentioned, they are net, you know, very small positive
04:30for the year. And I think I read August is a net negative, some 20, 21,000 crores. So
04:36they are not the key movers of the market right now, although historically they have
04:40been the biggest movers of the market. What has transpired over the last three, four years
04:46is this deluge of money coming from SIP accounts and allied. I think that has completely changed
04:54the game. And therefore, the FIs as a factor has been pushed into the background. Now,
05:02I think personally, and I think the rest of the market thinks it too, because they are
05:06not having an impact, their selling is not having an impact, is perhaps the market thinks
05:11that their return is inevitable. Their backyard is now giving them about 4% yield. So why
05:18would they go and seek some, you know, slightly better than that anywhere else in the world?
05:23And then now we have these indications that there'll be rate cuts and all that and bond
05:28yields are coming off in the US. So I think by the time it slipped beneath 4% and all
05:35that, you will then start having positive noises in that area that FIs will now have
05:40to come back. Now, they all deserted the market, so to speak, at much lower valuation. And
05:47they were perhaps thinking that at that point of time, that was rich valuation and they'll
05:51get it cheaper. But that has not happened. Valuations have been moving up. And now there
05:56is lots of justification that this is fair. 20 times, 21 times, everybody has their own
06:02theory about what is right and what is not. The key element is, there is liquidity coming
06:07from the people, which is a completely new element. And this is forcing the domestics
06:14to keep buying. And they are able to absorb everything that the FIs are throwing at them,
06:19as a result of which there is absolutely no pressure on prices. And so long as prices
06:24don't fall, people remain sanguine and everything is getting bought into.
06:29Right. Of course, we must remember that what the markets are also factoring in on a fundamental
06:33basis is the possibility of rate cuts in India as well, year down the line, a couple of years
06:41down the line. We already had a reasonably strong showing when it comes to earnings too.
06:47So fundamentally, a lot of these factors are also playing in favor of Indian markets.
06:51But from there on, we shift focus to one particular sector, which Mr. Narayan has, in fact, identified
07:00in the long run, which could have a potential for a significant run up. This is the films
07:06and packaging sector. Can you tell us a little bit more about this?
07:10Well, you see this packaging films area, that's a hugely swinging area in the market. It's
07:17very seasonal. And when the seasonality kicks in, the gains are tremendous. One, they are
07:25well patronized. So you have this very, let's say popular names, Polyplex, Jindal Films.
07:31You got Cosmofaz, you got Uflex, you got Esther Industries, you got several names, and all
07:37of them have been doing reasonably well. Now, the reason I'm interested into this is
07:42that at, let's say, close to 25,000 on the index, you want to buy stocks, not which are
07:49making breakouts. Of those, you got plenty, right? You are, you know, spoiled for choice
07:56for looking at breakout stocks. But breakout stocks come with their own risk element kind
08:02of packaged in. So at this juncture, one would be comfortable looking at something
08:07which has drawn down substantially. Now, drawing down in prices is one thing and drawing down
08:13in the cycle or in the trend is quite another. Now, if you take a look at this, let's say
08:20this packaging films industry, they were going great guns prior to 2020. So fantastic levels
08:28and people making money hand over fist. And that's typical within this industry. When
08:32the season is good, they make, you know, truckloads of money. And then when it is bad, they lose
08:37badly also. In line with keeping in line with the normal thing which happens is when your
08:45industry is doing well, everybody expands, puts in new capacity expansions and all that.
08:50And that happened to the films industry also. So everybody built new capacities and all
08:55of them came on in a year or two, three years. But by that time, COVID struck and this whole
09:01space went for a toss because supply chain disruption was happening, demand destruction
09:06happened and everything. And as a result of which the pricing of these BOPP films, you
09:12know, the BOPP films and all that, they dropped substantially the FMCG and auto and a wide
09:17variety of people who consume these. They also started doing badly. So that whole thing
09:22was a kind of a downward loop. And after picking on many of the stocks, they did so
09:29somewhere around 2022. And then for the past two years, they have been hitting a series
09:34of lower tops, lower bottoms and going down in a heap. And the pullback in prices has
09:40been ranging from as much as, let's say, 40, 50 percent down to a minimal of 10 percent.
09:47So all of them are well dropped down. And the time limit for the correction has also
09:52been pretty decent. Right. Now, what is happening in that area is that prices are finding their
09:57feet. If you read the commentary of most of those, you know, the companies, all of them
10:03in unison have been saying that we are seeing now sort of green shoots. Right. And there
10:10is a turnaround. There is a turnaround in the end user. There's a turnaround in the
10:14prices of all these BOPP. And they typically, you know, kind of pass on the the increase
10:21in the raw material costs to the end client. So they are not overly affected. So there
10:26is a turnaround within the industry. Now, it may still be a bit of a fledgling, like
10:31prices fell from 40, 50 to 10 rupees and then 10 rupees. Now they are up some 12 or 13 rupees.
10:37BOPP films are done better. They have gone from somewhere on 10 rupees to about 20 rupees
10:42a kilo and all that. So there is an improvement. And recently, if you see the last set of quarterly
10:48numbers, last quarter number only taken collectively, they are more or less, you know, kind of even
10:54this. There's really no aggressive change in the numbers. But then you're talking about
11:01all all all the managements who are looking ahead with a lot of expectation. Price rises
11:07on the mend and stock prices are on the mend. Right. Eventually, fundamentals get reflected
11:13in stock prices. Absolutely. Which is why, you know, doing a technical analysis study
11:19of prices gives you an idea of where fundamentally things are on the mend. And I'm finding that
11:25within the whole of the, let's say, packaging film industry. And that is why my interest
11:30A, it is an interest. It is an area which is well patronized, well followed. And then
11:36B, when the going is good, they really make a lot of money. Right. And C, the stocks perform
11:42extremely well when the cycle kicks in. I think all those things are getting ready.
11:46We have the first of the rises which has happened. And I think it's a place to pay attention
11:51to. Right. So, you know, since we've spoken about this particular one, let's pull up a
11:56handful of names and see how they have done over the course of the last three or four
12:00years, because they say that the trend is your friend until there is a change. And that's
12:07where around the bend. And I want to actually talk about the recent trend that we've seen
12:12in a handful of these counters. So if you disregard what's happened in the last three
12:17to four years and short. So this is, of course, a chart of UFLEX, which is actually showing
12:22a decline. And now it does seem like it's moving back towards its highs it made several
12:30months ago. Let's put up something like an Esther or Jindal Poly. And, you know, we can
12:35actually see that there has been an ever so slight, well, up move in the recent past
12:42few weeks. And, you know, as Mr. Narayan was also pointing out, that there's been a little
12:47bit of a change in the fundamentals, too. And that has actually led to a little bit
12:51of an improvement in terms of prices, though a lot of these companies are very far away
12:57from their life highs. But, you know, the fact that you're actually seeing firstly,
13:02as you notice, a lot of these companies are actually seeing consolidation for many weeks
13:07and months. And after that, you're actually starting to see a little bit of buying return.
13:12So that means that, you know, a lot of analysts call this a distribution phase. And it does
13:17seem like that seems to have come to an end. And now it does seem like buying has returned
13:22to a lot of these companies. If you consider the group of these stocks, what are the stocks
13:29that you think are poised that perhaps could outperform its peers, the rest of the bunch?
13:37Well, like we mentioned, there are a bunch of stocks which are already meeting up with
13:41some interest in the market. Now, my personal pick among this whole lot is Uflex. And the
13:48reason is more technical in nature rather than fundamental. Fundamentally, they're all
13:54similar. You know, everything is improving. They've all been maintaining, except I think
13:57Esther, which has been in a loss. And I think Uflex also last quarter, there was a bit of
14:02a loss. So it would, you know, kind of pick up later. But the key reason is, if you look
14:10at all of them as a group, now they've all had big, big declines. Like if you take Polyplex,
14:16which is one of the most well patronized stock within this pack. Polyplex actually from the
14:23high in 2022, declined by about 42% from its high, which is like quite big. If you
14:29take Esther, that had a decline of something like 58%. In contrast to that, you add Cosmo
14:36First and let's say Jindal Poly or something with about a 20% decline from the high. Uflex
14:42is unusual in the pack that it had only a 9% slide from the top. So this straightaway
14:48tells you that whoever are the holders of Uflex or whatever is the view towards Uflex
14:54in the market, is not as bearish as it is with respect to the other companies. So that
14:59is point number one. Now, you come to the point on the same set of charts as to what
15:05is the recovery after this big fall. Because a fall being limited is one signal. The recovery
15:12from the fall is quite another signal and collectively they give you something more.
15:17So if you look at the recovery, then Polyplex again has recovered about only 23.6% retracement
15:23of the whole fall. You have Cosmo First which has gone till about 50%. You got Jindal Poly
15:29which has gone up to 38%. You have Esther which has done about 55%. And you have Uflex
15:36which has almost completely retraced the whole fall. So Uflex high if I recall correctly
15:41was somewhere around 775, 785, somewhere there. And we are currently trading in Uflex at about
15:47750 already. So Uflex is the one which has also shown the max amount of recovery. Which
15:53means that in the fall nobody was very keen to sell and in the recovery they are very
15:58keen to buy and sending the stock up to the previous level. Now Uflex is within shouting
16:05distance of making a breakout to the new highs. Now of course that will need triggers. Now
16:10that will come with the next set of results, quarterly numbers perhaps that may come with
16:14some news about continued rise in the price of these films etc. So this is not something
16:20that I am looking at, you know, kind of performing immediately. These are all recovery stocks
16:26and if you also just go and do a search, these were well-tracked stocks in the past but you
16:32will be hard placed to find a buy report in any of these names in the recent past. That
16:38means they have all dropped out of sight. So that means too much of ownership does not
16:42happen. So this is the first flush of advance where stocks are getting bought into. Now
16:47after some news flow will come and then all that flow will happen. So I am looking at
16:51this across the next one year, one and a half years kind of play where stock prices can,
16:58which are down and out, can at least reach some decent levels. But Uflex being at the
17:03head of the pack, I think that will push on to new highs and we will see some, you know,
17:10new sets of, let us say volume dominoes or buying dominoes play out in that. So that
17:15is how they are placed collectively.
17:16Mr. Narayan, I wanted to address risk management in this case. A lot of traders and investors
17:22out there firstly struggle in at what point of time should they add on to their existing
17:29position. I am assuming that you would recommend that they add on to their existing position
17:34not when the stock is falling but when the stock was rising. And secondly, the exit strategy,
17:40that perhaps is the biggest struggle out there. At what point of time do you decide that the
17:46stock has had its run, it has seen enough and that is when you decide to either partially
17:51or completely exit?
17:53Well, see, exit unlike entry is a very individualized decision. Because everyone has their satisfaction
18:01level of what is profit. Whereas there can be a decent amount of consensus about where
18:08it is to be bought. Because on value, based on what they read, whom they listen to, etc.,
18:16everybody gets an idea of that stock A or B is at a certain value where it should be
18:21bought, the risk is low and all that. But when it comes to exit, there can be a variety
18:28of items to be considered. One of course is the personal level of satisfaction about what
18:35is the amount of profit that I seek. Now that is fairly arbitrary and there can never be
18:40a rule around it. It is tied to the individual's account and where he is in the whole rainbow
18:49of things. Otherwise, the typical exit strategy which is applied is when there is a fundamental
18:55change which happens. Now fundamental changes to manifest take a little time and it is only
19:01the people who do a deep dive into it can spot some changes in trend. So that will require
19:08certain amount of skills which is not there with most people. So exiting near the top
19:13therefore becomes one of chance and for a few people by design. So let us leave that
19:18also out of the equation. So that leaves us with the rest of the people who look at overt
19:25signals of a change in trend. Now these overt signals of change in trend can come from the
19:30chart, can come from valuation discomfort, can come from a point vis-a-vis the market
19:38as a whole etc. So there are so many points. Now if you take the market as a whole, that
19:43is doing gloriously well. So the market is not signaling an exit in most of the counters.
19:50But it is also a fact there are many stocks which have been blazing away and are way out
19:56of whack with valuation. Now what valuation is the peak valuation? Who has an idea? Nobody.
20:02So there again it becomes an educated guess. So I think the best way to look at it at least
20:08in my opinion because I may be biased since I am by nature a technical analyst and looking
20:14for weakness in trends and that too trends over a longer period of time to tell me that
20:21things are not as rosy as they were in the past. And you can find that out if you are
20:28decently adept at studying charts and finding out and being able to look at longer term
20:34charts. I think there are a few kind of pockets in the market which are showing that sort
20:41of signals. It really depends upon whether you believe what you see. So there again the
20:49subjectivity comes in. But I would say if valuations are considerably out of whack that
20:55people are nervous to buy more at this level. B, if the trend starts to falter for whatever
21:03reason known or unknown as of now. See fundamentals are what are known today. But there are so
21:10many unknowns within the fundamentals which are known to a few. The actions of those few
21:16when it is reflected on the charts on a more consistent basis that is what will tell us
21:23on the charts if you do a deep enough study that things are not as good as they were before
21:28and perhaps it may be time to take some money off. Right. Absolutely. I reckon the final
21:34thing that I want to touch up was on what could potentially be an end to a theme and
21:41that is a defense sector. Because we have actually seen a whole lot of these companies
21:45like Mazgon Dock, Cochin Shipyard, Garden Reach Shipbuilders come off significantly
21:49from their highs. What is your observation here? Well undoubtedly the defense sector
21:55has been one of the biggest in terms of delivery of profits and that you know they have all
22:00gone up 20 times, 30 times from you know the basis that they used to maintain. It's
22:06also moved from among the most hated to the most loved. Sure, sure, sure. That's the kind
22:12of rainbow that you have. Yeah. Which sends out warning signals that you should be a little
22:17bit on the alert. Yeah. Right now if you look at it on the charts the pace at which things
22:23are changing and the kind of trend strength which is showing up in all these stocks that
22:28is starting to slacken. Yeah. Which is not really a surprise because you know all technical
22:34tools measure cycles. Yeah. And cycles tend to show up on the charts in the form of some
22:41divergence patterns. But divergence has to be married to a trend change. Right. Now what
22:47you are having is part A of the equation in many of these defense stocks. Sure. That they
22:51are starting to show you that the cycles are starting to weaken or falter a bit. Yeah.
22:58But there is no trend reversal yet. Right. Now trend reversal needs triggers. Now that
23:03triggers can come after a little bit of price decline. Yeah. Or the price decline can happen
23:08alongside a trigger. How it will manifest we have no idea. But we are seeing signs of
23:14some kind of exhaustion starting to appear in all the defense stocks. Not just the few
23:19names that you mentioned. Now I think they are all running on residual momentum which
23:23has been you know kind of built in. Yeah. And that is never a very good signal for you
23:29to enter from an investment perspective. Right. You can still get into an HAL and a GRSE and
23:36trade them. Sure. You know for a couple of days of upswings and all that. Yeah. But is
23:41it a time to invest into all these stocks. Look at that 80,000 crore order and then jump
23:46into something. I would say most definitely not. Right. Wait for a pullback. Will it come
23:52now. I have absolutely no idea. Yeah. But if you if I am a betting man if you ask me
23:57will will the pullback come in sector A versus sector defense I would bet for sector defense.
24:03All right. OK. OK sir. We leave it at that. Mr. Narayan thank you so much for joining
24:07us and taking us through your views. And of course the big sector identified here is the
24:13packaging film space. So we will be watching out for that one. Thank you so much for joining
24:17in with that. It's also a wrap on this edition of the Chartist but lots more lined up on
24:22the other side. Keep watching NDTV Profit.