Indian equity markets have been very volatile over past few months. Amid trade war tensions, rising US interest rates, crude oil pressures and the rupee fall, foreign institutional investors have been pulling out of emerging markets like India. The benchmark BSE Sensex jumped over 700 points or 2.1 per cent on Monday, but it has tumbled over 12 per cent in the last two months. Arun Thukral, MD and CEO of Axis Securities sees this as a sale season. Just as one rushes to malls to shop when there are huge discounts at stores, retail investors should take advantage of any correction in stock markets to buy good stocks for the long haul, he says. At the same time, he has a word of caution for traders, who must have stop loss limits, he tells THE WEEK in an interview.
Excerpts from the interview:
Equity markets have turned volatile now and this is essentially when investors get afraid, sell-off everything and go away. What is your advise?
All these years only 4-5 per cent of people are investing in equity in India. If they have a bad experience, they run away and don't want to be in the market. That is a challenge. I address a lot of investor meets and we always talk of this thing that how much time you spend in the market is more important rather than timing the market at all point of time. There will be problems. Crude oil prices have gone up, dollar-rupee is also adverse, trade war tensions are still there, IL&FS problem is still not solved, valuation of NBFCs has fallen, liquidity crisis is there. But, I always feel that investor gets his opportunity. You have to make volatility your friend. Or, if you don't understand the market and you are afraid, better buy a good mutual fund.
You mentioned the major issues we are facing currently—be it crude oil pressures, or rupee depreciation or the NBFC crisis; would you wait for some more time or should we start buying stocks given the correction?
What I always advise is that a retail investor is not invested in equity in a big way. Only, a part of savings get into equity. So, whenever you have surplus money, you should invest. But, suppose you have got lump sum money from somewhere, then do an asset allocation first. Someone may have got a bonus, or a inheritance, then never get into the market with the lump sum, then you stagger. It is a politically heavy calendar. There will be moments of anxiety, and on top of that there are the global issues like crude oil, US interest rates...All these things will continue. When the Brexit vote happened, markets fell, but recovered most of the losses. So, these things will come and go, but a retail investor should put the money whenever he has and these are great times to invest. If he has got some bounty, then he should stagger it.
As long as crude prices stay below $80, that should be more or less acceptable now, it is a new normal and your current account deficit should be around 2.5 per cent. These are the things market is accepting. Now, the trigger maybe elections, maybe something happens on the geo-political scene...RBI seems comfortable as CPI inflation numbers have come down, so there may not be a immediate rate hike. But, these things keep on changing, so we have to look at the scenario and make our predictions. So, again, we are telling investors to watch and invest in a staggered manner other than the retail person, who has got the money now. For him, its a golden time.
Should one just go and buy randomly when there is a market correction, or should one study sectors and pick up stocks where valuations have corrected to more reasonable levels?
One strategy is that buy a leader in each industry. What we advise is let the person go to a broking house, where he has an account, and talk to their research department. We talk to our customers to understand their risk profile. If a guy is younger, why buy only a large-cap, why can't he put money in mid-caps and small-caps. When you buy a fridge, you spend so much time, visit five shops, see and compare different products, even when you go to a restaurant, you check reviews. So, when you are buying stocks, please take some help. This is a much larger investment.
We have seen this whole NBFC liquidity crisis in the wake of the IL&FS issue. As a sector, would you still wait and watch the developments before buying any stocks?
Yes, we are waiting. We are avoiding that as of now. Let it settle down, maybe if some one already holds a certain NBFC and if its under our coverage, then we are telling them either hold or maybe add some more. So, we are advising case to case basis. But, as a beginner or new investor if some one comes and asks me this has fallen 20 per cent, should I buy, we are saying hold. Lets avoid (the sector) for some time.
Consumer stocks have also seen some correction. But, the valuations still seem expensive there. What do you think?
On the consumer pack, we are actually very bullish. The valuations are high, I agree, but the growth is visible and now correction has happened. Maybe, some more correction will happen in the next one year. But, one should add these consumer discretionary or FMCG companies to their portfolio.
Based on the second quarter corporate earnings that have been announced so far, how hopeful are you that things are improving?
Results, more or less, are as per expectations. TCS was good, Infosys kept the guidance, mid-cap IT was not that great; cement, last quarter too we had said, we are neutral, even among NBFCs, Bajaj Finance came out with good results...I am giving disclaimer here, I am not recommending stocks, you do your own due diligence. So, its mixed but on the positive side. We have seen in the last results season the recovery cycle has started and that is continuing in the second quarter. Hopefully, that should build up.
Over the last several quarters, banks' non-performing assets have worried investors. Is much of the pain behind us?
Yes. Resolutions are taking time, but identification, diagnosis, whether you are on the right path, whether the government is doing the right thing, I think more or less people are satisfied. People have accepted that the pain is getting out. So, the corporate banks are also coming back in to the play now. Our take is that private banks will continue to gain market share and the 30:70 (private versus public banks) will become 50:50 over a period of time. Private bank is a better play than PSU banks. The major problem was NPAs, which is getting cleaned, the CASA books are very strong and the franchise also very strong. That should benefit.
What about other pain points like telecom and aviation?
The pain is still there, because this market share war will continue. Its been a money guzzler, all these years, telecom has not given returns. So, lets wait. Telecom as a sector, we are neutral, we are not getting into this. Aviation, again we have seen because of crude price, what has happened to airlines like IndiGo and Jet. There is a market share game there also, and they are not able to raise prices. As of now you should avoid them.
Given how the rupee has fallen, should one just go and invest in IT and pharma stocks then?
Its a no-brainer, because there were other problems too, which are getting solved. The problems of FDA (US Food and Drug Administration inspections) have more or less come down. The pricing pressure has come down, the product pipeline is great and this dollar-rupee movement is helping. For IT also, this dollar-rupee is helping and the US economy is doing very well. So, the spend on IT will increase. These companies have got in to the digital space also. This all will help the IT companies. The cycle has turned. One year, back both IT and pharma were not doing well. But, we have been very positive off-late.
In volatile times would it be safer to just pick up stocks from Sensex and Nifty, and sit tight or look at other opportunities too?
If you have a portfolio already, if you have a good stock, you should go and add. Otherwise, if you want to pick up sectors, I am saying IT, pharma, consumption, where I will also include auto ancillaries. Then may be textiles, because in a trade war, if US is not going to import from China, then that benefit comes to you. There is chemicals because again there are concerns in China, they are shutting some plants; after that private banks with retail focus. Let us avoid housing finance companies and NBFCs; cement lets again hold it and metals, again neutral, though not a negative stance, this is the order of preference.
