Unlike most market players, Aequitas Investments’ MD & CIO Siddhartha Bhaiya does not think an adverse election result is the primary risk in the short term. He is more worried about valuations, which have risen to risen to what he thinks are “unsustainable” levels. In a freewheeling chat with Moneycontrol, Bhaiya said that there may not be much money waiting on the sidelines as is widely thought to be.
Edited excerpts:
You were bearish on the market three months back? Has that view changed?
No. I remain bearish.
Why?
Valuations are way too expensive.
Compared to the 2001 and 2007 bull runs?
It is worse this time. So many mid and small cap stocks are quoting at 100 plus PE (price to earnings).
What about large caps?
Not very different. Indian Hotels with 20,000 rooms is valued at $10 billion, while Marriott with 1.6 million rooms globally is valued at $ only 60 billion. Same is true of many capital goods names.
But as a portfolio manager, you would have to invest, no?
I stopped accepting fresh money three months back. Around 33 percent of my portfolio is in cash.
The popular view is that money waiting on the sidelines will flow in as soon as market corrects. All the money is already in the market. People are up to their ears in stocks. I see delivery boys checking their Zerodha app. No disrespect to them, but that is how widespread the participation is.
What about investors who are investing in mutual funds though SIPs?
Most of them have no experience of a severe market correction like what we saw in 2002 and 2008. Will they hang around if there is a big fall? I am not so sure.
Are retail investors today smarter than before, thanks to better access to data and information?
No. Human behaviour never changes. They will make the same mistakes as the investors before them.
Market appears worried about the election result..
Elections result is not the problem. Valuations are.
What will you buy if the market corrects sharply?
Can’t say right now. When prices fall sharply, so many other things could change. One will have to assess the situation then.
What are your concerns apart from expensive valuations?
Inflation. Retail inflation is at 4.8%. But, tell me, does it really feel like inflation is only that much? Look at food, transport, rent…everything.
Your quick take on the hospitality sector?
Bearish. Room rates and airfares have risen to a point where it is cheaper to holiday in Bali or Sri Lanka. At some point, more people will do that.
Any sectors you like?
Not at these prices. We used to like cap goods. But today, ABB with 3 percent contribution to the parent’s revenues, accounts for 20 percent of the parent’s global market cap. People are chasing stocks like ABB, Siemens, ignoring the fact that some of their good businesses are in unlisted arms.
Maybe higher earnings multiples are the new normal across sectors?
Everyone is looking at the last four years and trying to justify high valuations. They forget that stock markets have been around for hundreds of years. These valuations are simply unsustainable. I believe in reversion to mean.
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