Sustainable positive cash flows become extremely important. The “beginner luck” has played off well with Robinhood investors but a successful long term investor needs more than just luck, Ambareesh Baliga, independent market expert, said in an interview with Moneycontrol’s Kshitij Anand.
Q: July has been an impressive month for investors with both Sensex, and Nifty climbing above crucial resistance levels. We saw mild profit booking towards the close of the month, but would momentum change for the month of August?
A: This market is now being driven by liquidity infused by retail investors. With about 40 lakh new investors between March & June, and most of them having made profits due to the stupendous move we have witnessed, making money sitting at home was never that easy.
This has led to heightened confidence and further liquidity flows. Thus every correction looks like a ‘buying opportunity’ resulting in a spirited bounce back.
Thankfully, the earnings season Q1FY21 has been better than expected, helping fuel the rally. However, the ground-level situation is starkly contrary to the optimism in the market. The fundamentals have to reflect at some point of time, till then liquidity would dictate the trend.
Q: We have seen some massive outperformance from the IT pack. Most of the stocks have hit fresh record/52-week highs the July. What is fuelling the rally, and what should investors do? Accumulate or wait for a dip. Which are the stocks that are looking attractive?
A: The key positives in the IT Sector include healthy deal wins, a robust deal pipeline, and better-than-expected guidance for FY21. The COVID-19 scenario weakened the INR in the AMJ compared to the JFM quarter which contributed to an extent.
The Impact-Benefit ratio of Work From Home (WFH) has been favourable for the IT Sector compared to most of the other sectors especially manufacturing.
However, I would be a bit wary to buy further at current levels as I expect the discretionary order flows to be impacted in the next few quarters as a fall out of the COVID pandemic on the global economy and consequently on the customers of the IT sector.
Q: India awaits the inclusion of Rafale jets in the Indian Air Force, similarly for portfolio, are there are but any Rafale stocks/sectors which investors could include in the portfolio to safeguard from volatility?
A: I would broadly divide the sectors in the post COVID scenario into 4 quadrants - 1. There was no disruption in supply as well as demand 2. There was a partial disruption in supply but demand was unaffected (in some cases it was stronger) 3. Supply was available but demand was affected 4. Both supply and demand were affected due to disruption or govt restrictions.
I would stick to the first two quadrants with sectors like Telecom, Consumption related especially essentials, and lower ticket-size discretionary goods and Pharmaceuticals.
Q: 2020 gave an opportunity to investors to build their portfolio at a reasonable price. And many new-age investors seized the opportunity. Early trends indicate that so-called Robinhood investors are buying quality stocks. Which are the factors that one should take care while undergoing value investing?
A: First & foremost is the quality of management and corporate governance which ensures premium valuation. COVID induced issues will stay with us in the foreseeable future and certain changes will become permanent.
Thus, the past performance track record may not be any indication for the future as business models may undergo a change. It would also be prudent to avoid leveraged businesses in times like these as excessive debt burden can kill even the most profitable businesses.
So, sustainable positive cash flows become extremely important. The “beginner luck” has played off well with Robinhood investors but a successful long term investor needs more than just luck.
Q: We are also heading towards the Independence Day as well. Sticking to the theme, how can investors attain financial freedom especially at the time when there is a lot of uncertainty, and equity markets have rallied without any meaningful change in fundamentals?
A: It is always important to stick to asset allocation, however small the investable wealth maybe, even if the possible buckets are just two - Equity and Debt.
In times like these when a specific asset class is giving excessive returns, there is a tendency to drastically change the weightage to overweight on Equity.
When the tables turn, there is huge destruction of wealth. Instead, I would suggest regular profit booking and safekeeping of the same in the current scenario.
Q: What is your view on the recent results which have come out from India Inc. for the June quarter? They have not been as bad or the commentary from the management seems comforting. Or, was the Street discounting the worst before?
A: The markets had written off Q1FY21 since 2/3rd of the quarter was under country-wide lockdown. However, the results in the first half of the earnings season have surprised the analysts positively.
This will raise expectations from the others who are yet to declare their results. Generally, the first half of the earnings season tends to be better than those coming at the tail end of the season.
Q: People say that history never repeats but rhymes. Leaders of the past might not lead the future. So which according to you could lead the rally on D-Street?
A: I would rather say history repeats itself - the story remains the same - ‘Greed & Fear', whereas the screenplay and the actors are different each time giving a feel that “this-time-it-is-different”.
All the recent leaders may not lead in the near future, as the COVID pandemic has forced many to change the business model, made some businesses redundant whereas new opportunities have cropped up. However, some of the sectors which could lead the next rally would be Consumer, Telecom, and Healthcare/Pharmaceuticals.
Automobiles could be a dark horse due to their focus on personal transportation and Infrastructure could surprise as that’s one of the channels through which economy could get the booster shots.
Q: PM Modi’s assurance to the financial sectors was a positive sign. What is your call on the financials? Do you think that investors could contra bet on this sector as the worst seems to be factored in?
A: Though PM Modi’s assurance to the financial sector was sentimentally positive, the onus and the risk of funding the tottering businesses continue to remain with them.
The regulators have modified the reporting norms thus temporarily the balance sheets could look better than reality. However, with the moratorium ending on August 31 (unless extended), it may set the ball rolling for the new set of NPAs.
I would desist from investing in this space especially the private sector banks where valuations are still high and the NBFCs which have rallied after the initial COVID shock.
Q: Maruti Suzuki posted loss for the first time since IPO. What is your call on the auto space? Which sectors according to you can turn out to be a dark horse?
A: This is also the first time that Maruti faced such a situation. They wouldn’t have imagined even in a worst-case scenario of not selling even a single vehicle in any month and that became a reality in April.
They are fortunate to be sitting on a pile of cash unlike some of their leveraged competitors. The auto sector, as mentioned earlier, could be the dark horse of the post-COVID-19 scenario due to the focus on personal transportation, especially the two-wheelers and entry-level vehicles.
The other sector could be infrastructure as that could help kick-start the economy, thus government focus could bring interest back to this space.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.