How Ramesh Damani see Market panning out in 2011?

June 17, 2011   ·   0 Comments

The has been through a tough week. Inflation is still heavy and RBI’s move to hike interest rates by 25 bps with a flat global market scenario has made nervous, pushing it down significantly. However, , member of tells CNBC-TV18 that he sees no ‘sharp fall’ in the Indian markets.“The Market has already factored in the Greek default. There are no real signs of speculative froth in Indian markets,” says Damani. Defying to side with the collapse sentiment, Damani says, “I don’t see the Nifty going towards 4,800 levels.”

Further, on the retail side, he sees disenchantment among the investors. He says most IPOs have resulted in losses. While investors are yet to recuperate from the losses made in IPOs, even public sector follow-on public offers have faired miserably at the bourses. He says that barring , no other public sector scrip has managed to create wealth for investors.

Cherry picking stocks, he expects Dabur , and to ‘play catch up’, and is bullish on Akzo Nobel and broadly on the cable TV space.

Q: What have you made of all the news flow from the global market? Is it a real fear of the double dip phenomenon yet again?

A: The high probability of a Greek default is dominating international news. I may happen, there is not dispute about that Greek cannot pay back the amount it owns, hence, I think there will be an IMF, Germany lead bail out of Greece, in which creditors will have to take a hair cut.

The Greek default is well priced into the market. It has been simmering for the last six months; therefore, I don’t see the market being shocked by anything that comes out of Greece.

Q: Why do you think the market bottomed out and we have a floor at 5300-5400?

A: Most of the falls in the Indian market, whether in1992, 2000 or 2007, they have come because there has been a huge amount of speculative froth. There has been excess that the preceding bull market has created. There have been outstanding positions, interest rates have gone up, scams have surfaced, all these have made the market react negatively.

However, now there is no speculative froth in this market; no outstanding positions that are meaningful in this market. Interest rates are manageable in India, in terms of the carry forward rates. One day there is political paralysis, the other day there is interest rates fear that goes on and inflation is also high, therefore there is not just one cause that is making the market worried, it is more like a death of 1000 cuts that is leading to a boring market where the players have resigned and a lot of retail population has moved into other market like silver or gold or oil.

The market is just dying of lack of interest. It is hard to visualize a situation where you will see in India another fall of 2008 magnitude. It is more like the market drift along and then some good news will come and the market will rally back. The market muddling through the next three months, there is no sight of a sharp fall.

Q: Where do you see things changing?

A: I don’t see any triggers for the market to take it hugely on the upside. Emerging markets was a function global growth, which have slowed down. There is much less money coming into emerging markets, China, the bellwether of EMs is down about 20-25% in the last six to eight weeks, hence, there has been a slow down across emerging markets.

There is no such indication for an upward movement. There is a retail absence apart from favoured ones in the consumer sector like Titan, UB Beer, Jubilant Foodworks, which have not moved.

Q: Where do you drift through?

A: It is hard to call, whether it is 200 points Nifty lower or further than that would be on the side that would suggest that it is not very far away. It doesn’t seem to go to 4,800 levels; it would be fairly cataclysmic if that happened. If the market falls another 600 Nifty points in the next three months it would be fairly sharp. I am not of the view that will happen.

The market does not have that part to go down that much. At this point from the way I look at the market I do not see retail coming back, don’t see people building positions, don’t feel people having to square up positions that we are just going to hang around going a couple of weeks lower than a rally building back up to the markets. My sense is more like boredom than a free fall in the markets

Q: There were deals getting done at premium valuations too, is that the space to watch even if the market remains sideways for the next three months?

A: There is a huge disconnect between the prices. Businessmen are willing to pay for these businesses or these stocks and the price at which the market is valuing these stocks. In an efficient market, as we belief ours is, there is no reason that the businessmen would pay such a huge premium sometimes 100% or 200% premium to stock price a week before announcement was made.

We suggest that there is a lot of apathy in the midcap space. Bullish investors who are generally bullish in the past all their portfolios, which are at almost life time highs because they have been stock pickers over a period of time. The sentiment is depressed around the market, lack of retail interest and the lack of volume implies that this value in that basket of stocks and when you look outside and see the premium that foreign companies are willing to pay for these Indian centric domestic focus businesses is absolutely outstanding. Whatever the reason, the retail investor is being disillusioned by the market and it is unfortunate because you do get great bargains across the midcap space.

Q: Why are people so bearish and circumspect? Is it because their midcap portfolios have lost a lot of money or it is because they are getting 10% in fixed income what would you put the reason down to?

A: Interest rates have a huge bearing on this. We get 10% risk free you are going to put in debt, however, it does not explain it because you are getting 10% now you are not getting 10% six months back, interest rate has been spiked up in the last six months. Most of the IPOs that have come in the last year have caused retail investor huge amounts of money. The regulatory authorities need to investigate this failure. The price bands of the IPOs not being fixed correctly. It is not about going back to capital controls market, however, on the first day of the IPO if the stock is down 50% then someone needs to take a look at it, since the investor is not getting a fair shake in the market.

Everyone feels that the spike is temporary and leads to your cataclysmic event, therefore, the scares are hard to heal, it is unfortunate but I think that is probably the reason.

.Q: What is the best way to approach the market now for the next few months?

A: There will be a temporary dislocation in the market; you will see another 1000 point fall in the . However, there is no reason to sell your portfolio. I would suggest in your opening mark that you grit your teeth and bear it. You really have no choice.

Q: What would be the linchpin event where you will see a turn and say okay now this market has a chance to move higher because this has been resolved?

A: If there was one event the market would discount it, priced in and move in the direction it has to. It is a death by 1000 cuts, nothing really significant that will bring down the market and nothing is that good that will propel the market higher. We are in a period where we tend to make a broad range and move in the index. Maybe we build a broad range which of course is great for stock pickers because you can get some great stocks when the market is in the range and that has been proven in almost all economies including Japan. It is hard to say whether there will be another six months, can we make a new high next year, I am hoping we can but it could be that the market wants to spend maybe a couple of more years in a range before it breaks out.

Q: What do you make of this huge gap in valuations and how the market perceives them?

A: Consumer centric stocks are absolutely eye-popping, UB Beer is about 100 times trailing earnings, Titan is at 50 times earnings and so on, and there are 20-30 stocks that the market is gravitating towards. People believe in J-like curve, when there is a sudden explosion in demand, these companies are going to be the ones who dominate market shares, profits and cash flows. However, while the market maybe overdoing it on some of those stocks, they definitely under doing it on some of the other stocks.

You get fairly decent quality companies at single digit multiples maybe 3% yield or the new themes that you played out in the market or even on the consumer stable section there are some, on the lower end of the consumer staple, not on the lower end. However, there is a basket of stocks that are still under recognised now. The Nifty-Fifty market, the 50 stocks are attracting all the money attentions, speculative interest and the rest of the market keeps languishing and some of the stocks the multiples are eye-popping.

Q: When you speak about the lower end of the consumer spectrum, are you are talking about durable stocks or FMCG type plays?

A: In the FMCG scapce, I like Hindustan Lever. It looks very nice to me on a chart and if we have the kids on the block trading at 50 times, 60 times earnings I don’t think I will have the big boy on the block trading at 25-30 times earnings. Over time these stocks will be rerated because they share some of the favourable demographic profile that the market wants VIP , Jubilant , Titan or UB Beer . Therefore, ITC , Dabur and Hindustan Unilever will start playing catch up and all of them seems to have technically broken out, so it seems like there is an opportunity.

Q: What kinds of sector deserve a look now in the midcap space?

A: Paints play into that basic growth in consumer, housing, Indian infrastructure, therefore, they are doing well. Asian Paints and smallcap company Akzo Nobel are doing well.

Digitisation rolls to entire sector and creates huge new winners and losers, which of course in stock markets parlance create huge opportunities for savvy investors. In the Indian media industry, the cable industry, hugely analog business is undergo digitisation. The cabinet will start changing in the next six to twelve months and it will create huge winners and losers — the winners being multi service operators, content providers and the losers being people who still sit in the analog part of the business.

If you look at the stocks, they are not priced for any such change that will be able to take place over the next six months to one year. If you look at broad under heading the media and you want to single out content player, you want to single out cable operators, you could probably make some decent bets in there.

I have been obituary of airlines stocks and that has worked, that has been a disappointing sector in the last three-four months but the amount of confidence that the promoters have in the airline sectors is amazing. With putting in huge amount, ordering new planes and the stocks trading at penny valuation, I think long-term investors will do well in aviation stocks.

Q: Some of those stocks that were eluding to earlier aren’t that cheap either – Dish TV closed at a 52 week high yesterday, what kind of growth potential do you see for these stocks to justify buying here and then seeing huge upside?

A: Maybe you want to look at the cable operators not necessary Dish. Dish is a technology that has already digitized and already happened. It is not cheap in fact it is fairly richly valued. But if you look at some of the cable operators – look at the opportunity there are segments in the market where Dish TV will go to.

There are segment of highly densely populated metro cities or where there is huge traffic which will stick to cable because cable is a more efficient way to transport and will give you much more services than just Dish TV, in terms of broadband access, internet access. These stocks are building a model of how many subscribers they can have, what kind of pricing power they will have. If you move out the local cable operator and move into a multi service operator that knows exactly how many subscribers he has, the economics of the business is fairly robust to me.

Q: There is wide spread disappointments about the FPOs, which have come in the last one year are you disenchanted by how that story is playing out?

A: There has been great money made in public sector stocks because there are all very cheap in the early 2000 and 2004. They were at knock down valuations but increasingly I can’t see a whole lot of value in them. I have been disappointed with the quality of the government disinvestment programme. There has just been no imagination implied in terms of raising money or in terms of attracting retail interest back to the stocks. Even some of the listed stocks like , HPCL , you will find that government is using them all as piggy banks to control state policy and not letting them run as independent company. It is disappointing and the disinvestment needs to compete and thorough shake up.

There is a country called Mongolia which is the best performing stock market over the last year and they are coming out of the privatization programme as the largest coal company and what they have done is that they have given every Mongolian 500 shares of that company with the mandate that whenever it gets listed you can sell and create wealth. You need to do something to kick start this kind of company. I am not saying give it free but you need to make a system that every Indian member or the public can apply for few hundred shares and guaranteed allotment at a favourable price that brings people back into the markets and create the favorable churn. You need something to kick start the disinvestment programme, otherwise it is going to remain high talk and low delivery.

Source: Moneycontrol

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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