He advised investors to space out their stock picks. "It is a luxury to be able to buy at the time when one wants to buy and at the valuations one want to buy. If one does not relish that and always wants momentum to be on one’s side; one will never be able to make money because one will lose out when the market will fall. So, at 20,000-21,000, if an investor comes to me, my instinct would be book some profits. My instinct is why not to invest a bit of money that one wants to deploy in the equity markets."
Excerpts from CNBC-TV18’s exclusive interview with Amit Dalal:
Q: What do you think now? Markets are down to levels that did not look very possible even a fortnight back.
A: Absolutely right. We are perhaps at the tailend of a huge correction that has taken place in the market.
We have seen the worst of inflation numbers. The forecast of the Centre for Monitoring Indian Economy (CMIE) is quite positive for the whole year, which is about 5.5%. Even if I write that to about 7%, it is a lot better than what we are seeing now. Therefore, there is going to be a big positive from the agricultural production. That should help us look at the markets and at the whole scenario a lot better than we have now.
In case of oil, most analysts worldwide feel that USD 118-120 for the year can be expected. Therefore, if one takes the first six months of the year, we have seen a large spurt in oil.
There is a bottom. Whatever we are forming is a good investment opportunity for most investors. There is a lot of fear in the market. There is almost a consensus of 12,000 and some people say 10,000. I think we could not get a better market to take a little longer view.
Q: What do you make of the big selling pressure in midcaps? Are you sensing that some of the retail crowd and the High Networth Individuals (HNI) are beginning to sell out?
A: A lot of that is already done and now there is no buying in the market. There is some redemption in overseas funds. Therefore, if the Foreign Institutional Investor (FII) selling continues, these stocks are going to take the worst battering and are not going to come back until one sees enough consensus building on the largecap and a turnaround. So, the fact that midcaps are falling apart is not surprising at all.
If anybody identifies a stock, which is a good investment, and one wants to look at least six months down the line then these current valuations for the midcaps is definitely not something that I would fear to invest in.
Q: Would you buy stocks like Reliance Industries and L&T now after the fall?
A: I would buy Reliance. But I am not sure about Larsen & Toubro because in terms of valuations it is still not cheap.
If Reliance comes down below Rs 2,000 and anything below that, if the foreigners are ready to sell it at those levels, then I would definitely buy Reliance. I see a big positive year for Reliance in 2009-10, in terms of earnings growth, PE ratio and valuation. But below Rs 2,000, I would definitely be an investor for Reliance.
Q: What is a good way to approach investing right now? Are you sure this is the right time to go out and buy stocks?
A: Its very difficult to the bottom of the market. Definitely 2008 will always remain a year in which you will not make money if you had bought because the market fell from 21,000 to 14,000. At 21,000, we have precariously overbought and had this huge technical position, which was estimating a future, which will not come. Today, we are 14,500 and seeing a very dismal future. But the market has taken a toll for the mistake made in trying to assess a forecast, which was completely wrong because of oil, inflation, etc.
In terms of quarterly numbers, you will find a tremendous relief from what we hear from most companies for the June quarter. But if you take PSU banks, everything seems to have corrected considerably from a normalized fair valuation for many stocks.
Q: Any thoughts on Reliance?
A: In the short-term, we have a price risk. We have a value at risk where the whole market is concerned and Reliance will suffer. But if you take the fact that it is India’s largest company now, it is going to be the company which will show highest delta in earnings in FY09 and FY10, with a complete visibility of earnings. If you take almost all other sectors, I could put a question mark on where we are going in terms of their earnings. That is one stock, if you want to be in the equity market, and in any big correction one should buy.
Q: Would you buy anything in the largecap real estate space, with the kind of damage that has happened?
A: No, you can buy for some technical pullback. But in terms of a concept, I would not want to be in real estate and therefore the largecaps. Till now, we have only corrected the price in expectation of bad events in real estate. Once the news flow starts, you will see negative newsflow coming in the year. Real estate takes a long time before the pain is seen coming out of whatever development plans were there. That is where you get the bottom of the real estate stocks and I would stay away for a while.
Q: What would you do with some of these sectors like fertilizers that have a lot of momentum and trading interest in them?
A: Any incremental capacity coming into a company can get a better ROC or ROE based on the current government policy. The full momentum in these stocks is something that surprises me always.
There is an industry which will perhaps get some negative news from the government because the fertilizer subsidy costs to the government has gone up to a very large number. I would not be surprised if the government would decide to play around with its policy and make it slightly less remunerative than what we see as a picture for fertilizers today. From my understanding, we have topped out in terms of fertilizer earnings capability for most of the fertilizer companies.
Q: Do you see growing interest for the fixed income side now with equities having disappointed for the last 6-7 months?
A: It has been for the last six months. One of the things that I would like to caution investors is to not just go for the return. Look at the underlying expected portfolios of these Fixed Maturity Plans (FMP) because corporates have raised considerable amount of debt in the last six months. The figure goes into tens of thousands of crores. Therefore, incremental exposures mean incremental financial risk on the hands of the issuer. So be careful in which one, one is investing. If one gets a little lower return, be happy with that but go with a branded Asset Management Company (AMC) product where they would be cautious in investing in AA and AAA issuers only.
Q: Should a trader keep out of this market? Should an investor keep out of this market?
A: If a trader can short the market and get the short position, the market, information flow and selling of FIIs is with him. It is also a market for investors. People like me are always waiting for a fall to invest in.
Today TV18 at this price is definitely a stock to invest in. It is a midcap stock and has fallen a lot. Media attention is at a low because of people’s disinterest in equity markets. All that reverses itself when the markets pullback. To expect that our equity markets will never pullback is a bit of an extensive thought process given what we have seen already. So, this is a time for both traders and investors.
Q: Continuing with the advice you gave to investors to begin cherry picking, isn’t it possible that we are going to see a fairly lean phase, considering the clouds over the economy? There must be ample time for cherry picking.
A: Once should space it out and find the stock. But it is a luxury to be able to buy at the time when one wants to buy and at the valuations one want to buy.
If one does not relish that and always wants momentum to be on one’s side; one will never be able to make money because one will lose out when the market will fall. So, at 20,000-21,000, if an investor comes to me, my instinct would be book some profits. My instinct is why not to invest a bit of money that one wants to deploy in the equity markets.
Disclosure:
(Souce: CNBC)
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