“The irony is that nearly everybody is saying valuations are expensive and outlook is uncertain, and yet they continue to buy expensive stocks instead of value stocks many of which are available for a song,” says Anoop Bhaskar, Head, Equity, IDFC Asset Management. His says this is most visible in the banking sector, where investors continue to load up on pricey niche private sector banks.
In a free-wheeling chat with moneycontrol.com, Bhaskar says it is difficult to say how the stock market is likely to fare over the next one year, given that the signals from the economy are mixed.
“One year is too short a time, but I am definitely bullish from a two-year perspective,” says Bhaskar.
“Some parts of the economy are doing good, others not so,” he says.
For instance, job creation has not picked up, incomes have not been rising, and the benefits from lower fuel prices have not really reached the consumer, Bhaskar says.
On the other hand, malls are packed during the weekends, he says.
“But there too, it is only the food courts where consumers are actually spending. In most other categories, like garments for one, there are too much discounts, prompting buyers to put off their purchases in the hope of an even better deal,” he says.
According to Bhaskar, the consumption cycle has revved up, as also evident from strong demand for cars, both new and used.
A close follower of the used car market, Bhaskar says, the replacement cycle for cars has dropped from an average of six years to around three years. That is, car owners are upgrading their vehicles every three years now.
“Maruti True Value sold around four lakh cars last year; as a business model to get people to upgrade their cars, it has been a huge success,” he says.
Bhaskar likes companies in the auto, IT, cement, and consumer durables space, but says most of them are “priced to perfection”. In other words, the price is already reflecting all the positives.
“Commercial vehicle sales are now up for 14 months; but they still are below the numbers seen in 2010-11,” he says, highlighting the demand destruction in the last 3-4 years.
And while the auto industry is thriving, auto ancillaries do not appear to be the next best bet as a play on the sector. Bhaskar says the good quality auto ancillary stocks, too, are fully priced.
Cement is another sector which has done well in recent times, but offers limited upside, as quality stocks are over-owned.
“Any fund manager will find it hard to get outperformance (in the cement sector) unless he is willing to take concentrated bets on a few stocks,” says Bhaskar.
He feels monsoons will be a crucial factor for overall economic growth because large states like Maharashtra, Punjab, Tamil Nadu and Karnataka need to contribute more to the gross domestic product.
“The usual levers like building more roads will not really help in these big states because they have fairly well-developed infrastructure,” Bhaskar says.
On reforms, Bhaskar feels what India needs right now are more of administrative reforms, and not just pricing reforms.
“So far most of the reforms that we have seen are administrative pricing reforms, and whenever prices are freed up, they usually tend to go up, and hence the resistance to reforms,” says Bhaskar.
“Why is it that less than 20,000 people have declared income of over Rs 1 crore annually? That is kind of questions the government should be asking itself and doing the necessary reforms. Selling stakes in state-owned companies is not reform,” Bhaskar says.