You can divide the stock market world into two: those are part of the carnival and are excited because the stock prices are going higher and those who are sitting at home and are observing a lockdown. Are you observing a lockdown because prices have gone up or are you part of the carnival?
I think you have very aptly put it. Yes, there are clearly two camps: the guys who have participated in this rally and the guys who have totally missed it. But having said that, we have been advocating that once it was clear that almost $4-5 trillion of liquidity is going to be there and it will not be absorbed immediately into the manufacturing and business space, a lot of this liquidity would find its way into the financial assets and that is what has happened.
So we have been advocating from April onwards that you should be fully invested though you should choose your investment in what sectors you want to go. And so we have been part of this rally and have been advocating others to be part of this rally.
Why are you telling your clients to buy? If the economy is not recovering and if the lockdown challenges are still there, what is the economic rationale for someone to buy stocks? Is it not dangerous to just be invested because there is liquidity?
I agree with you. As and when the first and second quarter numbers get declared, there would definitely be disappointments because the first quarter has obviously been a washout. But I think the second quarter pickup is also not as strong as what people were expecting; so some disappointment is going to be there. So that is why we have been advocating investors to be in defensive sectors; whether it is IT, pharma, FMCG, telecom or agrochemicals. These are all the spaces where it is a very basic consumption. So people are eating, they are having a bath, they are drinking tea and coffee. So these are the basic things; there is consumption of agrochemicals.
The only space we are saying good growth is coming is telecom because we are sitting at home. Second is the rural side and that is why we are advocating agrochemicals. There has been huge support from the government on the rural economy and there has been a good monsoon. So these are the spaces which we have been advocating. The other space which we like is metals and we have been advocating continuously that you should be invested in metals; rather be overweight in metals from April onwards and this is largely because of the liquidity. So the only way we are playing the liquidity is through metals. We are overweight here though it does not have an economic case and I agree with you. But most of the other sectors which I have told you are defensive and they have a strong case to be invested in. So that is what our thought process is.
The Q1 updates from both Bandhan Bank and Bajaj Finance have been extremely strong. Yesterday we had extremely strong commentary again with regards to Q1 HDFC Bank. What is your own sense? Are there any investment opportunities still within financials? Is there still headroom?
No, I do not think so. I think they have recovered pretty well. But one thing which we have seen in several of these downturns is always that during these times, the market leaders always gain market share because they are the most resilient. They have the resources, they have got much better planning and they have a strong franchise. That is why both Bajaj Finance as well as HDFC Bank have shown strong numbers for the reason because they are their respective market leaders. We will continue to see them gaining more market share as we go along the way but it may not be true for the sector as a whole. So I would believe that both of them have recovered pretty well from the bottom. But I think it is best to hold rather than actually add any of these stocks into your portfolio anymore.
What about the IT stocks? In terms of commentary, even though numbers might see single digit growth, is there anything specific that you will be looking out for from the IT major?
I think this year obviously the first and the second quarter is going to be negative for them but we believe that the second half is where some growth is likely to happen; especially in the largecaps. We like Infosys, HCL Tech and Wipro. In the midcaps, the favourite still remains to be LTI, Persistent and NIIT Tech. We see that the midcaps are going to still do okay from here but I think largecap seems to have run up quite a bit from these levels.
There is excitement around Reliance with the stock hitting a fresh high in trade yesterday. What is the expectation ahead of the AGM? There is a lot of anticipation and expectation as to what the next step from Mukesh Ambani is going to be and whether we are going to hear any constructive deal when it comes to Reliance Retail next and as a group. Will that be the next area of focus?
As far as the AGM is concerned, people would be looking out specifically for the Saudi Aramco deal. That is one thing which is pending for them and that deal I believe is in the works and might get announced at the AGM. Secondly, what I would look out for is, yes a lot of money has been collected. Now what is the big plan as far as Jio is concerned? You have to understand not much has been shared with the markets and with the investors basically as far as Jio plans are concerned. So going ahead, that is very important. Basically how all these guys who have brought in money all bring value to the Jio platform. What they will be doing in the next three to five years and possibly listing the Jio timeline for the listing of Jio are some of the things which the market would also be looking out for at the AGM.