As the financial year draws to a close, what have been your key learnings and key assessment of how the year has played out for India Inc and for markets?
The last one year started off with a lockdown that was tough not just on individuals but overall on the economy. A lot of midsized companies have suffered and on top of that, the corona pandemic has been causing chaos in our personal lives also. But the biggest learning has been that as long as you have core portfolio stocks, you will still make returns. Have faith and end up valuing stocks, valuing managements which have run through this crisis with flying colours. That is what has helped the markets and large caps have traditionally held good because these players have gained market share thanks to the fact the lending cycle was curtailed for midcaps and the small caps.
That portion finally ended with the Budget coming out and opening up a door which was unprecedented as far as the present government is concerned. The government made sure that the focus remained on growth. We are ending up doing a number of things to make sure that the economy restarts again and in a large fashion. That means the trigger that all of us are waiting for in the financial market is the support from the government. Private capex always follows large initiatives from the government. So if you have been an ardent investor in the markets, you have gone and bought it at 7,500-7,600 levels and you will still be invested because there is a lot more juice left in this market for years to come. So stay invested, look at your portfolio and track it very closely. Look at the management and stay invested in quality companies, That will drive returns for you for the years to come.
The long term story is quite intact as far as Indian markets go but let us talk about midcaps versus Nifty. While the midcap index had given about 100% returns in the last one year, the returns from Nifty had been about 75%. Do you think the resurgence in the midcap space has run its course or is there room for a further uptick?
We have just started the rally as far as midcaps and small caps are concerned. You have got to understand that the biggest kicker in this is going to be the lending cycle which will start off from the banks. If you want the entire economy to do well, this will be the flagship sector as far as returns are concerned at least for the short term. The biggest beneficiaries are going to be the midcap companies.
Real estate has started showing small signs of traction; auto has shown signs of traction after a very tough year. There have been initiatives from the government on the infra side. So, ride thoroughly these midcap companies which are undervalued and have been beaten down because they have gone through the toughest phase and the future is going to be much brighter. You should slowly build a portfolio in the midcap space over the next two to three quarters and that will be the portfolio that will end up carrying you through for the next three or four years where returns should be sizable.
Any particular space that you find attractive at this juncture, which investors perhaps might be overlooking?
Though we are going through a tough phase as far as volatility is concerned, for short-term investors, the fact remains that the sector which will lead has to be the financials and subsequently there will be a follow on effect on the rest of the sectors that we are talking about. We are fairly bullish on cement, building materials and on sectors where the government is going to be having a first level of spending. So there is a long way for our markets to go but the volatility will also be high. A 70%-80% return in Nifty and 100% in midcap will bring its own course of volatility because there will be profit booking, there will be sectors that will be changed and so you have to track your portfolios very carefully over the next six to nine months and build a solid portfolio for the future.
When we had spoken to you back in February just after the Budget was unveiled, you said that we are seeing the start of a mega bull rally and that we are in a very sweet spot. But a few weeks later, we hit a roadblock of sorts. Volatility is still prevailing. When do you see the tension or the volatility ease?
Markets have to be volatile for traders to make money. Short-term trends are for traders and short-term investors. But if you are building up a portfolio which says that it is going to ride the rally for the next two years plus, then you should not be too worried. A bond yield hike has happened in both the US markets and to some extent the Indian markets will be controlled by the government over the period to come. Inflation fears and Covid concerns are there. The government has managed last year’s crisis well. Economy has been kickstarted. Last six months saw a V-shaped recovery. The government is well aware of the entry points that they have to come in to make sure that the economy revives.
For long-term trends, the structure has not changed. I remain bullish on the economy consistently and on top of that, the government is clearly saying that growth is important and we are willing to look at fiscal at a later point of time. The bad bank theory has to play out, the infrastructure outlay that they have put in has to be put in to ground and the kickoff has to happen. The government has started well but there is a lot more to come.