Is the headroom for market to go higher very limited now?
It is more limited than where we were in September last year. This process of opening up and relaxation of lockdowns would be a gradual one. So we will have about a 2-3 month period with stage-wise relaxations. Full normalisation is likely by October-end. The best period for stock market is the point when the reality check is a little far away and there is a general optimism and hope. The market is not looking at short term data points but it believes that the long term will be great. We are in a sweet spot now. Everyone knows that there is going to be significant earnings downgrade in the first quarter.
As the ARPU war is still not over in the telecom sector, what is the outlook on Bharti Airtel?
The telecom industry is changing for sure. We have three players and the third one is reasonably weak. Currently, there is a belief that telecom stocks are not doing so well because there has not been any tariff hike. If there is no tariff hike by the end of this calendar year, then chances of the weaker one getting even weaker increases further. It would mean further consolidation. The stronger ones are likely to benefit in the long term. So stay with the stronger ones. If you can get a pure play over there, that is the best way to look at it.
Do you expect the recovery to be a slow-paced one in financials? There are concerns of slippages after the lockdown. What is your strategy in this basket?
I will not brush aside concerns over lockdowns. There is going to be an impact for sure. However, the larger banks went for surplus provisioning last year and that should hold them in good stead.
In 14 out of 19 markets around the world, financials have outperformed the benchmark in their countries. India is amongst the few markets where financials have underperformed on a year-to-date basis. That is pretty odd because India boasts of several quality names in this sector. India is also coming out of a five-year long corporate credit cycle and so credit cost should come down.
Our reports shows how financials or Nifty Bank is just a mirror image of India’s Covid cases. Around September, when the first wave peaked, Bank Nifty hit a significant bottom within days. From that point till February, when the first wave bottomed, Bank Nifty outperformed the country benchmark by 40%. When economies normalise and growth comes back, financials are well positioned to play that trade.
February onwards, the outlook got clouded because of rising Covid cases and financials took a backseat. As Covid cases peak, we should see a significant move in financials. The market has been wanting to play that old reflation trade.
The valuation of banking index, on a relative basis to Nifty, is trading at a much bigger discount. Secondly, the positioning of FIIs is at its lowest in more than six years. DIIs are far from the heydays of 2019. So the positioning is light. It is a pretty good reflation trade.