Devang Mehta, Director-Equity Advisory, Spark Private Wealth, says: he doesn’t think the market is due for a large correction now. Is it the start of a pre-election rally? It seems so. Is the market expecting policy continuity going ahead? It seems so. Plus, El Nino getting converted into La Nina is also being talked about. So, the monsoon would be good. However, it is important to differentiate the men from the boys. One cannot get along with anything and everything, One needs to be a bit selective in sectors and businesses you are buying.
How are you looking at the markets? What are you recommending to your clients?
Devang Mehta: We are seeing that the markets have regained a bit of mojo which was lost during the March fall. There were a lot of theories going around that this is the start of the next big correction but that honestly was not the case and we were sticking our neck out saying that this is a good opportunity that lasted right from September to February. There have been corrections, but they did not last long, March correction was a bit deeper while in April also we saw a snippet of correction.
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But there is so much liquidity waiting on the sidelines; the earning season has started. Look at the guidance given by some of the management and also the regular business updates which start during the start of the quarter. Things mostly seem to be hunky-dory. Look at the GST collections or macros, other macros, PMI data.
My sense is that there is not going to be any correction now. Is it the start of a pre-election rally? It seems so. Is the market expecting policy continuity going ahead? It seems so. Plus, El Nino getting converted into La Nina is also being talked about. So, the monsoon would be good. My sense is that there is no larger correction waiting right now. However, it is now important to differentiate the men from the boys. One cannot get along with anything and everything, One needs to be a bit selective in sectors and businesses you are buying.
You have an eye on some of these technology or tech backed lenders. Do you like any of them?
Devang Mehta: Yes, Bajaj Finance, though a bit expensive, has been one of our favourites. We know that the valuations are a bit expensive but honestly out of four quarters, in three quarters Bajaj Finance delivers and there is always a scare in one of the quarters that it would miss the target and given the expensive valuations, if there is any slippage, that makes the stock correct. But to be very fair, right now, there are so many pockets of the market where the valuations were inexpensive, though they are also getting expensive but the capex part of the market, the discretionary consumption part of the market, credit growth related ideas in wealth management or broking or AMC space or typically even banks have not done well so far.
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The private banks have not come out of the hibernation they were in in the last one year. So, yes, Bajaj Finance remains one of a good idea to sort of bet into, but there are so many pockets inside the financials as well as if you just get into and sort of get into the NBFC universe as well. Also, Bajaj Finserv being the holding company for Bajaj Finance and also the insurance arms, offers a lot of comfort to a lot of investors.
What is your tilt in the market right now? We talked about your favourites, but is FMCG really part of that list?
Devang Mehta: FMCG has underperformed the entire market in the last couple of years, be it HUL, be it Nestle, be it other businesses in similar domains. Yes, there are certain exceptions which have done very well. But to give a 60-65 type of a PE to a company whose volume growth probably goes 5-6%, there is no way saying that the franchise has created great wealth for investors over a period. A lot of these franchises had created a lot of wealth. But right now, there are many pockets in the market which can outperform this on a return basis for the next two-three years and are also inexpensive in valuations.
If I can bucket consumption into two parts – the non-discretionary part which is suffering right now because rural recovery has not been as sharp; the other is discretionary or luxury consumption which is where the money is right now going. There is a lot of smart allocation of money that has happened from this end to this end, not only on the stock prices but also as India aspires more, as India sort of grows more, more disposable incomes are with people, the spending is huge.
Look at the ARR for a hotel company like EIH, Rs 18,000 is the ARR. So, there is inbound religious tourism, spiritual tourism,. A lot of such tourism initiatives are where hotels are expanding. The supply right now is at around 4-5% the rooms and the demand is around 10-11%. So, this demand-supply mismatch plus a lot of companies using their operating leverage and companies are also getting less and less debt.
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So they are reducing the debt burden as well. I think this part of the market where people are graduating from cars to SUVs to even the luxury end of the consumption is where most of the money will be made, for example companies like Titan, Landmark Cars.
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