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bat AER of JB Morgan he remains constructive on Indian markets at current levels but believe that market will consolidate some more time around these levels he also recommends investors to play themes like financials and infrastructure stocks here the detailed conversation what's your take you know because the Ste Street still seems a little divided on whether or not metal stocks can be pushed at least 8 to 10% higher from here or is it time to completely take your money off the table a it's uh very uh it's very relevant that you ask me this question because just last week we downgraded the metal sector from an overweight to neutral uh basically the sectors had a great run over the last 18 to 24 months and we see near-term headwinds building up for a couple of reasons one is you know the global reflation trade that was expected I guess has been put forward both in terms of you know the timing and the pace of recovery so you know that's one headwind that's building up and it's reflected in commodity prices correcting the second issue was while commodity prices and commodity stocks were correcting through February and March uh the Indian stocks held out and that I think was because of India specific reasons so you know there was a catch-up trade also where you know the Indian stocks had to you know catch up with their Global counterparts so we thought you know we'd had a very good trade there and we decided to take some money so the view is that you know over the medium term I guess the Indian stocks will make money for you because there is significant restructuring potential a lot of them have a very solid volume growth Story coming forward particularly because you know a lot of them had issues in terms of utilization levels for regulatory reasons so you know I think there's a very compelling restructuring and volume argument coming but we'll wait for both this period of seasonal weakness as as you know more clarity on the reflation trade to come in before going overweight again is that the case with the rest of the market as well out performance seasonal weakness just maybe get a little cautious yes yes I mean that's again that was one of the themes of you know the U our monthly strategy that we put out last week we believe the markets have had a great run beginning December all the way through March and while you know medium-term we remain con RVE we think it's time for a breather and why is that I mean because globally as well things are not supportive is it just a valuation thing can we not be better than I think it's a combination of reasons Aisha when we turned positive in December it was really on the back of three factors one is we thought that the demonetization scare was overdone two we thought that January to March will be a very supportive period for the market in terms of policy and third we are buyers of you know uh the argument that there'll be a meaningful earnings recovery into 2018 fi8 that is and we set then a target of 9,300 for the Nifty base case and a bull case Target of 9,600 the issue for us is that the first two triggers have played out and the Nifty is at 9,200 so you know all we're saying is that look I mean and the third trigger we are talking about which is the earnings recovery I guess you know the recovery is going to be there but it's going to be patchy and it's going to be back ended perhaps into the second half of uh fiscal 18 because through the first half you know you still have to get through a few headwinds so all we are saying is that look I mean you had a great trade I mean uh the Market's going to pause for a breather and then pick up perhaps sometime into the second half so are we stepping into time wise correction or price wise correction I would say time wise correction more uh I don't see a meaningful price correction IE something which is beyond say plus or minus 5% for local reasons alone because you know I think there's a great deal of macro stability there's a great deal of political stability so I don't see the market selling off for local reasons alone but yes I mean if there's an international issue then I mean we'll perhaps you know go along with that because at the end of the day we are a consensus overweight Market but for local reasons alone I think you know it's more a TimeWise correction rather than a price correction do you supect globally things could get a little more a right than what is already in the price right now because again you know if you talk about the US market that's somewhat like India or maybe we're following them post- elction you know um craziness in the markets and now with these geopolitical talks you've got the UK imp pending election as well things seem to be getting a little bit wobbly I would agree with that I think you know you're right in the sense that again you know globally if you see the medium term I mean we as a house remain constructive on equities and you know in our Global multi-asset portfolios we are running an over position on equities with a particular focus on Emerging Markets but that said you know you could have three or four choppy months uh you have a packed political calendar you know the French election the German election now the British election uh you know uh how policy pans out in the US given the high level of expectations so and uh which may not necessarily be met over the near term so you are right I mean you know politically I mean mean the next 3 4 months could be choppy for markets so it'll only be choppy there's no steep correction that we could see globally not that I can see see I'm not an expert on the global markets but uh you know uh so I I I I defer to my Global colleagues on that but uh you know I think there is you know a case to be made for a time wise correction and some choppiness okay great so what would correct we've already talked about Metals what else is looking like in ISO because if you one looks at the private banking numbers off late they have those sticky one or two accounts because which the npas are still getting hit and you know you always prefer the private banking lot so one is a little taken a back by what On's he heard from yes bank or in you're right a in the sense that you know if the broad Market is going to you know time correct or you know be a little choppy then I guess you know financials will have to lead the charge because I mean they are such a large part of the index and they've also been meaningful out performers so while the medium-term story remains constructive for the private Banks I think near-term yes I wouldn't be surprised to see a correction not a very big correction but 57% I wouldn't roll out no but I'm talking about the trigger here the fact that npas continue to be a concern there's always that one sticky account I mean yesterday it was JP Associates tomorrow it's going to be someone else point taken AA because again if you see uh you know there's been a fair bit of bad news building up on the financials front in the last two or three months uh you know you had the RBI signaling the end of the easing cycle uh you had uh you know the Farm loan waivers uh you know you have credit growth at just about 5% you have festering credit cycle issues still NPA policy exactly and you know I think the markets stayed supported you're absolutely right you know the financial spack has been entirely stay it's a state supported because you know people are expecting this big NPA policy and uh you know it's ignored all the bad news so a lot is going to depend in the next month or two if you were to take a very near-term view it's going to depend on two things one is you know you need this NPA policy coming out and it has to meet Market expectations and you know you need the npl numbers to behave themselves because if these two things don't happen you know the the sector has to make up for some bad news yeah and the scope for disappointment there the scope for disappointment is immense because you've ignored all the bad news absolutely uh what's going on with the broader markets does it you know one keeps thinking that every morning when you have the Dow correcting by about almost 1% it's the broader markets which are going to fall but some of these midcaps the likes of the darts or you know sun TV or India cements of the world they're refusing to fade away do you sense that there's a bigger bubble waiting uh in the near term when it comes to broader markets see broadly if you ask me I'd agree with you that perhaps you know uh the midcaps are trading at a meaningful premium to the large caps so in the event of a correction then you know the midcaps are more vulnerable uh to the large caps but that said you know it's very difficult to paint them all with the same brush because you know midcaps tend to be very unique stories and you know in some cases the valuations were very beaten down or very compelling in some case there's a scarcity value so you know you'll have to take a very specific approach to these but yeah broadly I agree with you that you know caps are trading at a meaningful premium to large caps and in the event of a correction they are more vulnerable so what are your biggest overweight underweight positions right now sectorally see I should if I take a one-ear view we like three themes in particular uh one is on a one-ear view we still like the financials uh we think you know there's a lot of liquidity sloshing around in the system what within financials uh I would say I mean the private sector Banks definitely the retail Banks I mean again within private sector now we have to you know start segregating uh the retail Banks I think still have a great compounding story uh I think which will continue to unfold on the corporate lenders or you know the the larger lenders I think you know a couple of banks look interesting because you know they seem to be ahead of the curve in terms of you know sorting out their uh credit cycle issues and I think they have been uh you know the markets are going to appreciate them for being more honest in terms of their disclosures so I wouldn't rule that pack out completely the other area within financials which looks very interesting is the mgage companies the housing finance companies because you know what's happened with demonetization is on the one hand real estate prices have corrected on the other hand rates have fallen so affordability levels are you know at 6 seven year highs and so if you take off pockets in Mumbai and NCR I think you know markets look like they Reviving so this is what we'd Buy in financials the second theme that we like is uh you know select infrastructure place because I think the government is doing a very good job of you know investing in a few areas which are priority for them areas like you know highways power transmission uh Rural Housing and sanitation irrigation so I think you know segments catering to these like you know cement construction equipment tractors you know the power transmission companies all of them look very good to us and you know for us they are two threee Place uh utilization levels are still 70 75% so there's a lot of Leverage on the way up so we believe that you know these are core Holdings for us at least over the next two years or so the third theme that looks interesting is urban consumption because you know you had the government push through the pay commission recommendations uh I think the state governments and the state owned companies will follow suit uh you've had a meaningful you know 200 basis point cut in lending rates over the last two years 100 basis points happened in January it self- courtesy demonetization so I think Urban consumption looks good so these are the three themes which we really want to play over the next two years okay um you know you talked about uh your rational behind liking hfc's is that the reason why you're seeing this excitement within the real estate pack and do you think the best of it is already in the price see as far as real estate is concerned I think you know the reason the stock prices have gone up I mean has got only partially to do with the fact that you may see a pickup in uh you know sales I guess it's also got to do with you know very specific restructuring initiatives that some companies have announced in terms of you know spinning off the commercial portfolio and ensuring that you know value is attributable to that so I guess you know it's those are more unique stories I don't think you know there's a there's an across theboard uh you know positive sentiment for all the companies how is it that you're seeing the entire government PSU space right now I mean after omcs do you see more areas to be taken up by the government maybe fertilizers see I mean uh these are clearly very big because they're huge Enterprises and they're clearly monopolistic and they are cing to essential needs of the farmers or some segment of the society so business possibilities are very high the properties got impacted because uh bulk of their products are subsidized and government obviously didn't want to give extra money uh more than what is the cost of production so how will these Enterprises flourish for the shareholders second since it is subsidy the compensation to the most of the manufacturers were based on Cost Plus or some kind of a committee or it is very difficult to see the future of these companies uh and uh stock market is only about seeing the future so you can never give highp multiple where future of these companies are not certain even if they are making profits but if the future profits are always under threat then the investor will never give you highp multiple and hence you can make very limited amount of money despite High profits of the psus so these issues apart from deregulating they must deregulate with the very firm conviction that this is what will will be followed irrespective of whatever happens as the market gets confidence on the new uh sets of laws or new rules of the game Market will start reating all the companies okay so how is it that you're assessing the reform process so far by the government do you think they playing on expected lines uh and de delivering as per the commentary yeah yeah I mean see beyond out the headlines of change uh the quality of commitment The Talk by the ministers what has been what decisions have been taken the pace of decision making uh understanding of the problems I mean everything is uh right and uh they are taking uh decisions which are at times which is unpopular but good for the nation good for the people so ramdev how would you map the FI in earning uh you know scenario the general consensus is that earnings recovery is around the corner no so far the results which have come and uh so I I'm not that hopeful on the very broad-based earnings recovery or anything like that but select companies will do very well and that is going to remain the trend of the market for even the next four quarters that uh the earnings will be very you know sector focused or few company focused rather than very very broad-based so and we are hoping that we get we can catch enough uh that 1520 companies in portfolio which will have a good prospects and good earnings growth potential uh while we are holding them so Ram in this market where it's difficult to find Value how are you how are you putting your money to work incrementally where are you investing yeah so uh flows have been very strong I mean uh actually the flows started happening from January 2014 so 3 years have been Relentless this thing but uh we are seeing for last 2 3 months the flows to become even stronger like March was very large month April is also shaping up to be a record month so uh the flows till yesterday has been fantastic now uh with the flows the markets are also very high so our conventional companies were I the portfolio where it was uh I I wish you know our na is high but my portfolio valuation remain you know more attractive uh at the current level but uh I think the uh the challenges to find uh new uh quality stocks at reasonable price quality stocks are there but finding them at reasonable price and putting in the portfolio in a substantial quantity that remains a challenge but I still think we have enough ideas where we can deploy current flow of the investors money that always is the Big Challenge isn't at TR but what is it that you're making of the risk reward uh currently for the overall Market because it seems like off late that's getting a little bit challenged there's been some escalation of global Fear With regards to geopolitical tensions and political um you know uncertainty as well within the UK region and then for our Market the fact that we're already at all-time highs how are you mapping the risk reward ratio right now no I mean when the market goes up from say 8,000 to 9,000 your prospective return for one year or maybe even two years get impacted uh significantly but the guys who are coming for 3 to 5 years 7 years I think the impact is very minimal and uh uh it is not worthwhile you know timing too precisely whether to buy at 9,000 or 8,700 because the nvs are continuously moving up and outperformance is there so in some schemes out performance as high as 15% perom so uh so even if you get the bottom you may not get the bottom of the NV so what is important because at the end of it you are going to buy in the schemes the nav of the scheme and if the with the bottom of the market if the eny of the scheme is higher you don't get benefit even if you're time with right so I have seen it is futile to time the market precisely and people spend and this is the biggest profession people have in timing the market so but they spend too too precious and too much of time timing the market and eventually they end up buying at wrong price R you know with you we always learn we get to learn about uh the basics of investing and you've always said that look you've always looked at uh Financial books Financial literature to uh to sort of uh arrive at your investment philosophy so just for the benefit of our viewers which is that uh which is that new book which has caught your attention and currently you are enjoying reading it yeah so I'm reading a very small book called Forever investing I'm almost at the end of it very interesting book it is very close to the way we do things but uh there is always in the books you'll find some of the ideas which are uh better the very concept forever investing you know he's saying that all the serious money in the world of the stock market has been made by the guys who broad broadly followed forever investing The Fortune 500 guys none of them none of them are not far ever investing including Buffett so uh Buffett talked about forever if the company and management both are good in that case the uh typical holding period is forever that's from where the forever investing started but if you look at Bill Gates or Mark Zuckerberg or Zeb buzos or anybody anybody who is rich in the Fortune 500 they're all forever investors in their own Enterprises so he's taking the queue from there and he's saying that this everyday flipping or uh buying too many stocks and too frequently trading uh is not the way to make serious money find us on Facebook at facebook.com/ etow and don't forget to click the like button you can also follow us on Twitter @ etow live to stay updated with all our programming hit the Subscribe button on our YouTube channel by logging on to youtube.com/ now
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