Before rebounding, Nasdaq had taken a 10% knock. Do you think we have peaked for the year and a downside is eminent now?
Some bit of nervousness is expected in the US markets. It was at a very high level and as we all know, November elections look uncertain. Also, before every election, there is nervousness in the US markets and post election, the market picks up. The same script is getting played out once again except that the market was at an all-time high and some amount of nervousness was always there.
Having said that, as it is the mother market, it has a significant impact on all emerging markets including India and we have been seeing that happening. Indian markets have seen some amount of selloff. But I would say Indian markets have got a bit of stability and I do not think we will see a major selloff which will take the market to the March levels. We will probably correct a little bit from current levels if there is a massive selloff in the US but after that, Indian markets are unlikely to go below 10,500 levels.
But sometime close to the third quarter beginning and towards the festival season when corporate numbers, the two-wheelers sales numbers, the consumer durable numbers start coming, the market will take positive cues and there is definitely a genuine expectation of pent-up demand and some amount of genuine demand coming back in the festive season.
What are the three things about the economy which you like which are making you believe that 10,500 will act as a support for the Nifty?
The monsoon has been fantastic and that has been coupled with the fact that the last crop as well as the current crop has been great. The government also has put a lot of support to rural India whether in terms of multiple schemes like NREGA and others and also the recent benefits post pandemic. The benefit of that has gone to rural India to an extent. Rural India is going to be the bedrock for Indian economy in the current fiscal and that gives me some confidence.
The second factor which I am putting my hopes on is the expectation of one more round of fiscal stimulus. It has been talked about quite a bit. The chief economic advisor has come on record and said that when the lockdowns get lifted, it will be considered. I am hopeful that something on those lines will happen.
The third factor is that corporate results have already shown signs of kind of improving, the performance has started improving, auto sales numbers have started improving and consumer durable companies have started getting traction in the market. A combination of these three factors but predominantly the first two which is rural India strength and the expectation of fiscal stimulus in the near future.
What is the view on Escorts? At Rs 1,200 plus levels, is the good news baked in?
Absolutely correct. The good news has been baked in. The numbers were commendable under these circumstances and the expectations are that the tractor sales will continue to be robust going forward as well.
The liquidity in the rural market and the economic activities are continuing unabated and it has picked up momentum as well. Escorts will continue to do well. But to a great extent that has already been factored in the prices. So I do not think I will venture out to buy Escorts or recommend buying Escorts at current levels. If there is a dip, maybe that will become an opportunity to buy in.
After the initial pent-up demand, auto ancillaries and especially the battery makers Amara Raja, Exide are still holding through. Do you sense an investment opportunity there?
Absolutely. I have been bullish on both the battery majors Exide as well as Amara Raja. The OEM part of the business may be a little slow because the auto sales numbers have not been anything great but the replacement market has been quite buoyant. During the lockdown, cars had not been used and in a lot of cases the batteries needed to be replaced and so that demand has been strong. But the performance of these two stocks goes much beyond that.
Globally, the trend is to move to electric vehicles and that is a very rapidly catching trend. Remember in an electric vehicle, the most important component is the battery. Somewhere in the near future, these companies will become the single most critical component for an automobile and I am assuming that both of them are gearing up for that. It will be good to start positioning as an investor in these companies.
Also remember, Exide has a full-fledged life insurance business inside it which probably does not get fully recognised and valued at this stage. If you are a long-term investor, it makes tremendous sense to buy into both these companies at current levels.
Any view on the Happiest Minds IPO? We have seen some massive subscription coming in on day three. Ditto for Route Mobile with investors mopping it up. Any advice?
I have been positive on the Happiest Minds IPO. This is one IT company which has got 90% plus of its income coming from digital and as we all know digital is the way forward.
Yes, there were certain concerns expressed on a peer to peer comparison as far as valuation is concerned and people were looking at Infosys multiples and kind of comparing with the multiple at which this IPO was expecting subscription. But one has to look beyond that and look at the way the world is moving. One has to look at the quality of the promoter of Happiest Minds. Mr Ashok Soota has a proven track record and considering all this, Happiest Minds is a good buy and that kind of got proven as far as the IPO subscription numbers are concerned.
I am pretty confident it will be a bumper listing as well. So yes, a good and quality company’s IPOs even in this market amidst the pandemic and volatility is attracting a good amount of subscription.
What about the MNC stocks? There has been a cluster of outperformers like Pfizer, Honeywell, HUL, Britannia as well as Nestle. Do you have any preference within the space?
In the entire MNC pack, HUL has been an all time favourite. That is a darling of the market as well and considering what is happening in the economy, the pickup in the rural demand, obviously the consumption-led recovery which people are expecting going forward will definitely support Hindustan Unilever. They have a very strong rural distribution as well so that will remain in my investment portfolio.
Apart from that, all the MNC names you mentioned are good companies with quality management, performance. But if I have to pick, I will go for Honeywell. At current levels, Honeywell is looking very interesting. The demand for its products is expected to be going up significantly in a post Covid world with automation and instrumental automation getting more and more priority and a valuation comparison also looking attractive. Honeywell is what I will look at buying at current levels.