On Tata Group stocks
Tata Motors is a stock which I have had in my portfolio or a very long time and I have again and again made this point on Twitter, even at a point when Tata Motors fell to below Rs 100. Tata Motors is a stock it is definitely going to give you a lot of compounded profits because if you go back in time, it has still not reached the price at which it was trading four-five years ago. They have made a lot of shifts towards adapting EV technology and today they are in the forefront in the Indian passenger market with their EV vehicles.
Going forward, in the next four-five years, they will emerge as one of the top passenger car companies in India. They have already overtaken you know a lot of other passenger vehicle companies in India and the way they are coming up with new EVs, I think that is the future and that still remains a top stock to hold in your portfolio.
What is the other way to play the overall EV trend?
Personally, I think two-wheeler companies will do very well going forward because they have already adapted this technology — whether it is or Bajaj Auto — which have not done well over the last few months. I always look at things from a longer term perspective. I have picked up Tata Motors at a price much below where it is today.
Tata Motors is adapting this technology right now but a lot of two-wheeler companies have already adapted this technology. Going forward, those are the companies which will do really well.
For EV manufacturers, there are batteries and other parts. Right now, so much is happening in the unlisted space and not much in the listed space. I am not really sure about the battery space but I have no doubt that two-wheeler companies will do very well going forward.
Don’t you think there is a risk? Ola Electric, Xiaomi are lashing the market with EV bikes. Is that risk being priced into the market with the underperformance of some of these names?
: I do not know to what extent Ola Electric will be able to manufacture its own equipment. It still remains to be seen. It has not been tested like Bajaj and Hero, which are already dominant players and have an established market. Their brand name sells.
From time to time, a lot of these new age companies come up but in the Indian market, they are hardly ever able to make an impact compared with these large well established companies. They outperform in their own ground, but when you go to the rural areas — tier two, tier three cities — it would be the brand names that will be preferred.
What about real estate? Some of real estate stocks have done quite well. Any view there?
There are two things there; first of all, real estate does have a cycle. Real estate stocks have not done well since the 2008 crash. So, some of these companies will do well going forward. But having said that, where the market is right now, it would be hard to take a bet on real estate sector because if markets go down, that is one sector that would struggle a lot. A lot is going on around the world in the real estate sector, but India is not very affected by that.
I find it really shocking that people are actually buying into a lot of these names where there is a lot of frenzy. One little liquidity suckout and the whole pack of cards will come down. Frankly, I have not spotted anything that I would consider as an opportunity in that sector.
I am really wary of this market and don’t like anything other than pharma, IT and auto. If you ask someone why they are buying these stocks, they really do not have any other reason other than to say that the prices are moving up, which I think, is a dumb reason to buy any stock. So nothing there for me.
Do you think the market is getting faster as well, any positive, negative news is being priced pretty fast?
I do not think that is the reason. I think the reason is it is a frenzy right now. I have been negative on the markets since they were at 13,000-14,000 level on the Nifty. Even today, at that price point, the market looks expensive to me. If you look at the FII, DII data since April, till now FIIs have sold Rs 65,000 crore of Indian equities and domestic institutions have bought Rs 51,000 crore and there is a gap and retail is filling that gap.
There is an absolute frenzy in the market and a perfect case in point to explain that frenzy is that since April till now, there have been about 26 IPOs of which only six are trading below their listing price and 20 are trading very far up! There are so many IPOs which have given 100-120% gains. If this is not a frenzy, nothing is. There is a lot of liquidity in the market, a lot of money has been printed and earnings have not improved. And even if they have improved a little, it is because we are coming from a low base.
Nobody knows how many companies are going to go bankrupt when there is a liquidity suckout. I am never the person who says that the world will come to an end very quickly. Nothing ever comes to an end. Stocks like Infosys and Tata Motors are here to stay, even ITC.
Why are you saying that there is no major recovery in earnings? Energy is doing well, IT is giving record numbers, auto is essentially doing quite well. Except pharma, most of the sectors are giving record numbers. Metals are doing well. Rs 40,000 crore is the expected number for Tata Steel’s EBITDA alone?
Yes, so let us take that one by one. Metals are doing well because they were coming from a very low base. You can count any one company other than Steel Authority, where debt is not a problem.
IT, I am really positive about and that is very justified, even though there was a dip in between. I am not going to talk about that but in all the other sectors, the numbers are looking good because they are coming from a really low base over the last six to seven quarters. Had they moved along at the same pace, at the same run rate at which they were moving before, the numbers should have been much higher.
No one can justify the valuations at which these companies are trading. Despite changing from standalone to consolidated basis on a trailing basis, the price earning multiple on the overall market is extremely high. I do not how much more earnings improvement can you factor in at this level of the Sensex for these prices to be justified.
There are sectors like IT, pharma, even auto where I am still hopeful.
Don’t you think that markets are trying to tell you that this decade could probably belong to India and we could see a sustainable earnings growth across various sectors?
No, I do not think so. Personally, I do not think markets are trying to tell you that. Markets are only telling you that there is a frenzy in the market, at some point this will iron out and whenever that happens, the fall could be much sharper than the way the stock prices have gone up. We have gone up from 13,000 to 18,000 levels on expectation that during this decade, the earnings will be very nice. Even if that is the case, it cannot be moving up forever.
The truth is that today there is twice as much money — 2.4 times more money — in the world than there was at the beginning of FY2020 which is about 18 months back. So, there is an insane amount of money printing. The economy has been shut. When money comes into the market, people have very little to do, they try to multiply their money and that is going on right now.
I may be wrong but my personal view is that the fall that we will see in the market is nothing like what you have seen before.
If you have to buy some sectors assuming that this is the decade of India which are the two or three sectors, maybe led by export, you would like to buy? If you are a fund manager you cannot be on 100% cash?
FMCG and IT will still do well in a country like India. In IT, the US will be a different story because when there is an increase in interest rates or bond buying activity stops, those companies could struggle but my long term target for a company like Infosys is 10,000. And I think if one conglomerate has to come out of India it has to be from IT space and Infosys is really well placed.
So Infosys or largecap IT for that matter and within FMCG, I really like ITC even at this price. Price action is driving a lot of buying activity and people are ignoring stocks like ITC which has a very well established business. It is a rock solid business, it is not going anywhere but it is not the flavour of the market. So for me FMCG and IT should still be one of the best bets to look at India from the next five, seven year perspective.