Listing Jio and Reliance Retail will create wealth from a 3 to 5 year perspective: Umesh Mehta

The huge amount of investments by foreign players in Jio platforms led to the big move which kept markets afloat despite other tensions.

Additionally, short-covering moves by institutional investors in the frontline index heavyweights also led to the rise contrary to general sentiment.

Q) What are the important levels which investors should watch out for in the coming week which is also an expiry week?

A) The Nifty faces strong resistance at 10,500 levels which forms 61.8% retracement of the entire fall. The range of 10000 to 10500 is very crucial for the markets in the near term as a sudden movement in either direction could give Indian bourses a new direction. However, next week’s expiry is likely to be below 10500.

Q) The big news of Friday was RIL which has become debt-free and proposes to list Jio and Retail business in the next 5 years. What are your view and do you think it warrants for a rerating of the stock?

A) Fundamentally, the fundraising indeed warrants for rerating in the stock as unlocking of value by listing Reliance JIO and Retail will create wealth for its shareholders from a 3 to 5-year perspective.

However, the current 94% rally in the past 3 months is unsustainable as the human mind can easily extrapolate but markets act differently all the time.

Investors think stock prices will move in a straight line but realistically it has its own ups and downs. And, a realistic growth path for RIL although is higher in the long term but in the short, to medium term, it will largely underperform and disappoint investors who invest at higher levels.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Q) Small & midcaps outperform benchmark indices in the week gone by. Is it the valuation which is fueling optimism in the small & midcaps space?

A) Yes, the past 2-3 years of underperformance have indeed made valuations of small and midcap companies attractive.

Low hanging fruits are being lapped up and that’s the rally we are currently seeing although if markets continue to move higher, we will witness further steam in the form of higher returns rather than alpha generation.

But, for ultra-long term investment, it is better to stick to large caps because those will certainly survive the new normal post-Covid-19.

Q) What is your call on the telecom space post the SC AGR hearing? Banking and financial stocks saw a big boost on Thursday. What are your views?

A) As far as telecom is concerned, the liability due to AGR is given and has to be paid. Although the payment schedule may differ due to the Supreme Court intervention.

Therefore, such decisions may create short term ripples but long-term fundamentals will only get better if companies are able to quickly improve their ARPUs which will be a key driver for the stocks to move higher.

Currently, this space has overreacted and valuations are rich which keeps little room for upside in the near term.

Regarding banks and financials, eventually, the RBI will be able to put forth its point in the interest of all stakeholders, and the Supreme Court is expected to take a rational view. Let us see how it unfolds.
Q) I would require a view on three stocks – Dixon Technologies, GMM Pfaudler and Adani Green. These stocks have been hitting fresh 52-week highs almost on a daily basis. What is driving the rally in these pockets? 

A) All the 3 stocks are witnessing movement due to fundamentals. Dixon Technologies’ consumer ancillary business is attracting huge contracts from global companies for the ‘Make In India’ drive that the Government is propagating. Scalable manufacturing is causing its stock price to move higher.

GMM Pfaudler is also experiencing run-up in price because it is a major supplier in the pharmaceutical and chemicals space with a budding order book.

Adani Green on the other hand bagged the world’s largest solar bid for building a 8000MW PV power plant along with a domestic plant of 2000MW. The humongous order is a big positive for the Company.

Q) We are living in a scary world where suicides have become common. In the financial world, we have seen a recent one that a 20-year-old Robinhood trader commits suicide after app shows $730,000 negative balance. Anything special if you are doing to make trading more safe, and avoid instances like these here in India?

A) The latest breed of tech-driven brokers, especially discount brokers, have solid risk management policies in place which certainly protect investors’ interest and restricts their losses to the extent of their capital.

However, in general, we have seen during economic downturns, bear markets, and pessimism, suicides and deaths of not only traders but in general, numbers are higher.

Because the ultimate outcome of downturns is sadness, disappointment, and unhappiness which causes humans to take such extreme steps.

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.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.