May 14, 2012, 09.29 AM IST
Ramesh Damani believes Indian equities will create wealth for investors over the long term.
When the going gets tough, the tough gets going, says Ramesh Damani. And the best way to describe the current equity market situation in India is tough.
The past year saw the Nifty touch 5,700 last July, but we also saw the painful crash to the lows of 4,500. Over 11% has been lost on the indices, however, Damani is bullish on India over the long term. "Cheap equity prices and good news don’t go hand in hand, but equities will create wealth over the long term," he says on CNBC-TV18’s special show Investor Camp.
He advices investors to look for great businesses, because those are the ones which will generate free cash flow. He further adds that investors looking to beat inflation should not invest in fixed deposits. " dividend yield on equities often meets inflation," he said.
Damani prefers buying individual stocks rather than buying an index, and his preferred bets are media stocks. "Digitisation, TRAI regulations and corporate interest will boost media stocks," he explains. He is also positive on Infosys , saying that the IT major will come out of its current tough phase.
On the flip side, he believes that government inaction is hurting aviation and telecom stocks in the country. He is also pessimistic about infrastructure names as he believes the current tight cash flow scenario will make it difficult to make money in infra names. "I am not particularly enthusiastic about gold return either post its recent run-up," he added.
Below is an edited transcript of his interview with Udayan Mukherjee. Also watch the accompanying video.
Q: Do you think it will happen this year, the turn or do you think it will frustrate people longer?
A: To honour Srinagar first, I am looking at Kashmiri proverbs. I am going to butcher one for the Kashmiris here, "Ati: sha:h ti Ati: gada:h". It means - a king for a moment, and a beggar soon after. The reverse is also true. If you are a beggar, you can also be a king. That's the way markets are. Fortunes change very quickly in the financial market.
I remember the period 2002-03 when there was so much pessimism in India after the technology boom, but that resulted in one of the greatest bull markets we have ever known in this country. The index went from 3,000 to 18,000; it's part and parcel of this market.
I hear all these people who tell me - I want to be safe in fixed deposits, in interest bearing instruments, I want to be in bonds and I am here to tell you it's a loony idea. With inflation at 10%, we are getting 8% pre-tax, so you are not going anywhere.
The second big problem with investors is they expect market returns to be linear. Please understand, market returns are not linear. You want the market to go up 20% a year and we all will be very happy about it. What I am trying to tell you is that maybe, in three years, the market will give you negative 30% returns. In the fourth year, it would give you positive 80% returns, so it will make up for all of that.
Market returns are never linear. We want them to be linear but, they are never linear. They are sporadic. There will be good times and there will be bad times. It was a bad time for the tourism industry here, a few years back. But now, all the hotels are full. Similarly, there would be good times in the stock market too. It is in the nature of the business.
Good times will return. I am not sure if it will return in the next three months or six months, maybe it will be 2014. But, if you are young, it's a lunatic idea to keep your money only in fixed deposits. You will never be wealthy.
Q: What do you think will trigger this turnaround? Do you think the same problems which have dogged us over the last many years will turn or something external will provide the stimulus?
A: There is a great saying in the market that you can get cheap equity prices or you can get good news. You won't get both at the same time. If the news is good, if the industrial production is up, if the rupee was strengthening, if there was good policy action taking place, equities won't be cheap, equities will be costly.
In some sense, it’s a perverse logic that because the news is so bad you are getting great bargains in the stock market and that's always true. I am not sure if it will turn around, but I know the kind of bad news that has been hitting the markets. It’s time to buy. It's not a time to sell.
I am not saying that you will make money in three months or six months, maybe not even in a year. The Dow didn't go anywhere for 10 years. But, as retail investors, you don’t have to worry about the aggregates. You can pick stocks. You can pick businesses that will do well.
In this doom and gloom, Hindustan Lever is at an all-time high. VST is at an all-time high. ITC is at an all-time high. These are all companies you know. Titan is at an all-time high. So, go ahead and buy some stocks. Stay invested. The dividend itself pays for what you get in a bank deposit.
I don't know if it will turn in 2014 or not, but I am very sure about that. You are going to be ahead if you invest wise in equities than if you invest in fixed deposits.
Q: Would you still stay with these consumer stories, because that’s the only game which has worked over the last couple of years?
A: They are not cheap. So, would I stay with them? I bought them at a lower price and it’s easy for me to say they look good. There are lots of other sectors available in the market that looks promising, two-three-five years down the road.
To give you examples, I have been suggesting media stocks for a while. Just look at the transformation that has taken place in the industry itself. You have had a Cable Digitization Bill being passed. You have had huge amount of corporate interest coming into the media sector. You have the new TRAI regulations which are very favorable, generally for the industry being passed.
I think, over time, these companies will start doing well. Right now they are not reflected in the price. The rural consumption for example in India - we had a good monsoon last year. You have a good monsoon again this year. A lot of people who go to rural India talking about a great boom going on in those areas are sell outs. So, look at rural housing companies. Look at rural building material companies. They will all tend to do well.
There is a basket. I have always picked stocks rather than an index or an aggregate. My advice to all of you is, pick a business that you trust. Something that you understand and believe in. You will be much better off than just blindly going by an average.
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Tags: market, Nifty, Sensex, NSE, BSE, equity markets, Ramesh Damani, inflation, fixed deposits, gold, mutual funds
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