Quite a critical month this one and especially after the weakness that we have seen all through October. You have got the US elections. You have got the FOMC meeting as well this week. You have got the jobs data. Hoping for a stimulus from China as well. Do you think our markets will continue to be under pressure?
Sandip Sabharwal: In the short term, the market movement has been more dominated by funds flow and we have seen a huge FII outflow. So, initially when the outflow started, my estimate was around $15 billion could flow out because of realignment of emerging market allocations, so I think that is happening. There is news of the Canadian pension fund being a seller because of what was happening between India and Canada, but there is no way to verify that at this stage. But nevertheless, I think that has led the market, especially on the largecap side, to more reasonable levels. Festival season sales ultimately, I think last 15 days picked up and if we see the auto sales data, if we see many other data coming out of various platforms, etc, they seem to be reasonably buoyant and plus, we now enter the huge marriage season after a long time where around 48 lakh marriages are expected to happen over the next two months. Markets have largely adjusted I would say. What the reaction of the global markets will be to US elections and whoever wins is tough to say. It is unpredictable, so I think that is something we need to watch out for. But from the Indian largecap, Nifty and Sensex, my personal view is that downside, if at all from the current level, should not be more than 2-3%.Since you believe that a large part of the selling is now behind us, do you think the time has now come to actually start buying the market and your individual stocks?
Sandip Sabharwal: On the largecap side, yes. So, as the results have trickled in and based on price movements, on the largecap side, few clear winners seem to be visible. If we see on the auto side, Mahindra & Mahindra, the way they have delivered on festival season numbers as well as the pickup in tractor sales and we have recently seen a correction in the stock price, so that looks reasonable. Bhati Airtel, again, the pickup in arpus has been quite strong and next two-three years should be quite good.There also the stocks corrected 10-15% from the top and then on the banking side, Axis and ICICI both came out with good results. ICICI, of course, is more near 52-week highs only after the recent, it corrected a bit, then it bounced back. But I still believe these banks should continue to do well. L&T delivered very strong numbers and surprisingly high order booking numbers, which was much higher than most analysts’ expectations. Many analysts actually downgraded pre-results, expecting a low accretion in orders, but the management commentary actually was quite positive.
This news was going viral over the weekend that Berkshire Hathaway is sitting on the pile of cash that they are. Is there any correlation to his selling in Bank of America or Apple for Indian market watchers?
Sandip Sabharwal: Not so much in the short run. They have been selling for a long time now, last few quarters and they might have their own reasons related to how they see the US economy or some of their holdings performing or their expectation of a downturn in the US economy. So, a downturn in the US economy was expected for a long time, but it has been surprisingly resilient. So, let us see how that goes. So, their time horizons also tend to be more near 5-10 years or more rather than the normal investor horizons of one, two, three years. So, the perspectives could be quite different.
So, if one has to really take a view on the market, we have got a recent correction which is giving a great entry points, where do you think it is time to now start buying the fear, whether downside could be 10%, volatility could be 15%, who knows? But you are clear that you would be a buyer in that space, that stock or that company.
Sandip Sabharwal: Like we were talking earlier, on the largecap side values getting created in some of the holdings where the delivery has been strong, outlook remains good and the stocks have corrected which includes stocks like Mahindra & Mahindra, ICICI Bank, L&T, Bharti Airtel, I think all of them look good from a longer term perspective and some of the consumer names also they have corrected post their quarterly updates, so if they end up correcting 5-10% more, it could be stocks like even HUL, Godrej Consumer, Dabur, many of them if they correct further I think we can buy them expecting a uptick as there is a revival in consumer. So, consumer demand revival has to happen at some stage, now it should have happened by now, it is not happening but eventually it will and then when that happens and those news flow starts coming in then the consumer stocks will be up. So, many of them could easily deliver 15-20% and just go up to their previous highs if they correct a bit more, so I think watch out for those.
Let us work with the assumption that the government spending in the second half will pick up, the government spending is much lower than what the average budget estimates or what the budget estimates are. So, I am assuming that there could be a serious acceleration in the government spending in the run-up to the year-end. If that is true what does that mean for economy related sectors — cement, steel, infrastructure, construction companies?
Sandip Sabharwal: Government spending should pick up because fiscal deficit seems to be well under control at least at the central government level, so projects have already been awarded, a lot of projects are on, so I think funding for those, push on those projects, etc, could continue and many of these infra companies have also corrected in the recent sell-offs, so I think some of them could present opportunities, allocations could increase towards more of the government’s favourite projects like Jal Jeevan or the road projects or even the solar projects, I think that is where a lot of investments could go.
What becomes a clear buy now? Will L&T be a clear buy? Could NCC be a clear buy? Could NBCC be a clear buy? One works with an assumption that the second half will be much stronger for the government spending which is the go-to sector? Could it be cement? Could it be L&T? Could it be a construction company? Could it be a government PSU?
Sandip Sabharwal: Cement companies should do much better in the second half but unfortunately most of the cement stocks have not corrected in line with the poor results of the last few quarters, so valuations are not attractive from my perspective, but on the construction side yes, many of the companies which have debt under control and are getting strong orders and who have also recently corrected, so I talked about Ahluwalia Contracts in the Diwali pick and like you rightly said NCC is very well placed and there will be a few others who are focused on urban infrastructure projects, etc, which could do well.