Speaking to CNBC-TV18, veteran investors Ramesh Damani and Samir Arora, along with trader Atul Suri, expressed optimism on the year ahead.
“My advice to a retail investor is that the bull market that began three years ago in the depths of a meltdown in August 2013… has a long way to go,” Damani said.
Arora, whose Singapore-based Helios hedge fund is 61 percent net long termed equities right now as “generally a good market” but added that optimism with respect to midcaps, which have done well last year, should be muted.
Suri said he would recommend investors look at consumption stocks, which he said would be steady compounders and propel markets higher. “I feel that we will go on and make lifetime highs but we really are not going to have a runaway bull market.”
Value investor Raamdeo Agrawal also talked about his investing stance right now.
Excerpts from the conversation. Watch video for the full interview.
Anuj: What is your sense of how Samvat 2072 has been and what do you think lies in store for Samvat 2073?
Damani: The past is a prologue. The Indian economy that bottomed out a few years ago continues to chug along. Now, we are seeing some signs of recovery in consumption, recovery in a lot of other sectors. So, I am very hopeful for the new Samvat.
As you know, I do not necessarily look at the index as an aggregate but individual stocks, and as both of you have been saying, it has been a stock picker’s paradise, is the place you want to be and anyone who has picked stocks carefully, respected their capital, has a lot of smiles this Samvat.
Sonia: What is the advice to retail investors because someone I was speaking to you said the other day said: if I had invested in gold at the start of the year, I would have got double the returns because gold is up almost 20 percent while the Nifty is up only 10 percent. What do you think will happen to asset classes from this Samvat to next?
Damani: One popular past-time in Diwali, if you go to various houses is people play cards and they tend to play the gin rummy where you have a bad hand, you pack and go away.
I do not think markets work quite that way. You want to buy great businesses and you want to hold them through periods of time. As you know, even the Sensex has compounded at 13-14 percent over long periods of time without dividends. Individuals stocks have just done much better than that and is always very risky to try and time the market. As we have often said on your programme, the important thing is time in the market.
So, my advice to a retail investor is that the bull market that began three years ago in the depths of a meltdown in August 2013 when the rupee was 70 to the dollar and there is a lack of confidence in corporate India is now three years, but it still has a long way to go. This is as good a time as any to invest.
I would not be afraid to tell retail investors that if you have some savings, put it in the market, put it into great businesses. I think the index is headed substantially higher, not just for the next 1-2 years, but perhaps for a period even longer than that. There are no signs we can spot right now that the bull market is ending. So, as long as you do not spot the signs, we request you to remain invested.
Sonia: What have you been doing with your money these days? Have you put in a lot of money lately, in the market?
Arora: Lately not because our net exposure is around 60-61 percent, which used to be 70 percent maybe 2-3 months ago. But in general, it is more like a longer term average rather than being extremely bullish at this point. And now, we have this issue of Donald Trump having had his prospects improve, this week will be very interesting.
But in general, forget about this week, market is good, but it is not a mind-blowingly super time to invest or something. It is a good market. As we broadly believe that market should be rather than getting feeling that this is the point where suddenly our world will change which I hear many people saying. I do not think the world changes so easily for us.
It is generally a strong good market — has been for all my life that I have been investing since 1993, other than having one or two massive paralysing episodes, which also you can recover from in the next 2-3 years. So, it is okay.
Anuj: Obviously, you are sounding a lot less bullish than you were about 3-4 months back. Is it just because of Donald Trump’s prospects improving because the markets have not moved anywhere in the last 3-4 months?
Arora: I was very pleasantly surprised and happy that Udayan Mukherjee said that our market has gone nowhere and we should look at the index. I totally agree with that. Look at our index, it has done nothing, what a great thing because actually everybody has done better broadly speaking because they have a mix of midcaps and largecaps and some smallcaps maybe.
So, if you look at the index, it is very satisfying, because A] everybody who was a fund manager would have normally beaten it by a big margin and secondly, we can tell the world that see, you have missed nothing by not being here or having not increased so it is a great time. I totally agree with all that.
I just feel that the difference between midcap and largecap is too extreme. It does not mean that largecaps have to do better, it broadly means midcaps have to slow down or their outperformance has to be moderated. And therefore, I think that next year our outperformers again, the benchmarks which have been very high for the last three years in 2014, 2015 and 2016 would not be that much because this mix will not work in our favour as much.
Sonia: How has the year been for you?
Suri: It has been a good year. On the index it has not been spectacular. It is 10 percent, 10 percent is not bad but with inflation being what it was, it is nothing big. However what happens is that you see a lot of stocks outperforming, the midcap index is up 25 percent.
So, it is nice when your benchmark per se is not doing too well but the stocks are doing relatively better and I think that goes for most of the funds, most of the portfolio managers, that stocks have done much better than what the index is showing and it has been a good year, middling year kind of.
Anuj: What would you do this year, in terms of leadership we have banks and consumption which have done well. Autos, for example, there is a secular bull market there. Do you stay invested there or do you look at maybe IT which has underperformed and has actually destroyed a bit of wealth this year? How do you approach these big pockets in the market now?
Suri: Essentially I am a believer in following the trend. So, I really feel that you can do a contra trade. For example, if you look at the best performer of the last year was the metal index. However if you go back to Diwali 2015, I don’t think anyone would have called the metal index. Even if you had called for it, you would be in grief for the next 4-5 months. So, the whole performance is backended. So, it is very difficult to talk about one year because year is made up of many quarters and many months. So, things are changing and dynamic, so the best way is to sort of follow the trend. I feel that this whole consumption theme that we are sort of talking about will continue, those stocks may not do this pretty things, may not double of triple but the power of consistent compounding is where investors have been rewarded in the long term.
I really believe that the key, the fundamental, the crux of making money in these markets is to compound consistently and feel that this whole consumption theme will propel the markets higher.
Looking ahead, when I look at the charts of the markets for the next one year, I feel that we will go on and make lifetime highs but we really are not going to have a runaway bull market. In spite of getting into lifetime highs we will get into a moderate index kind of performance and in that it is going to be stocks that are going to really sort of outperform and help you. So, it is going to be more of what we have seen last year.
Last year we had a share of surprises like the worst performers of the years prior to that were the best performers, metals did well, real estate did well and the darling for the last 4-5 years which was pharma is absolutely flat. IT was negative, so I really think that the consumption theme will play out, it has rewarded for many years, it will do so going ahead and more importantly it is the importance of compounding and staying in it.
If you are a good stock picker whether you use fundamentals or technical’s you stay with the trend, I feel that is the best way to go. There is no need to be really smart and pick the best stock or the best sector, if you are lucky you get it but more often than not it doesn’t happen to me at least.
Anuj: Some stocks that you would want to bet on? Any stocks that you would want to bet on now?
Suri: First disclaimer that, I or Rare Enterprises would definitely have an interest in the stocks we are speaking about. So, please do your own research. I would have exited the stock based on stop losses and people think it is a lifetime thing.
So, the year ahead is going to be very stock specific and I would really bet on some stocks that have been on a very good consolidative phase for the last year or so and which are breaking out. So, kind of a great rally that has paused, sideways for a year, year and a half and then breaking out into new highs.
So, one stock that stands out to me and which I have seen the charts lately is Arvind . I think Arvind has disappointed a lot of people, there was a lot of talk about it but for one year or so, it has been very volatile. It has broken out of the range with volumes. I feel that Arvind could be an interesting pick.
Another stock which I think again had a very big range, again relative underperformance to its peers has been Exide . I think Exide also is on the point of breakout and once it breaks out after such a pick sideways, it is like you wind a toy for very long and when that toy releases, the energy or the force that comes through is very sharp. So, I like Exide for that, it has been an under-performer and a consolidator for very long.
The third stock I like again is something which has been trending but is in speciality chemical space is PI Industries , that is another stock that has been trending very well and I feel that it is going to buck the whole sector. As a sector it is in a great sector but even in this sector I think it is going to be an outperformer. So, I kind of would pick these stocks.
As I said it is not about picking something very cute or penny stock or something that is unknown but I really would prefer to go with something which I feel is breaking out and would sort of trend up higher, consistency again is the key.
Nimesh: One thing that you decided to do from this Diwali to next Diwali either for yourselves or Motilal Oswal Group?
Agrawal: See we keep reading things every day. I just read something where it talks about 2×2 metrics — whether you want to be right or wrong, whether you want to be following the consensus or non-consensus, so if you want to make lot of money, you have to follow the non-consensus ideas and put disproportionate money.
What happens is that the old elephants who are very popular, very good, bluest of blue chip companies they get disproportionate allocation in their portfolio and the young or new companies which are very good, they are growing at 45-60 percent but they get 2-3 percent allocation. My real challenge during the year would be to how do I twist the allocation 2 percent for the elephant and 8 percent for the new ones.
Nimesh: Have you identified any new entrant into the Focussed 35 which is being your core fund that you manage?
Agrawal: It is a continuous process because we are always fully invested and we have 18-20 stocks and it is not an everyday game. In 3 months, 6 months one idea we get here and there and now wonderful initial public offerings (IPOs) are coming, so we have lot of ideas lined up if the IPO get at reasonable prices, but more recently I am at liberty to disclose because the trade has already been done, so we have bought good chunk of RBL, we bought it in anchor, we bought it in the IPO day, we bought it after the first quarter result so it had been a very good experience.
But just because the stock price has moved by Rs 30-40 bucks that doesn’t mean that anything has happened. I think the journey is long, it is going to be lot of hard work and whether it matches up to the new private sector banks which we have seen whether it is an HDFC, whether it is an IndusInd Bank, Kotak Bank that is a hope and dream whether its work or not only time will tell.
Nimesh: I understand you feel RBL Bank is the young HDFC Bank according to you. Is that a something that probably will mature over the next 4-8 years?
Agrawal: The opportunity is much bigger, value migration from PSU banks to private sector is on and it is a wonderful team. They have everything going for them, opportunity is very large and now whether the management put their heads down and whether they deliver to what people are aspiring, people like us we are aspiring – – it takes time, even for the management they also need to get success and then success builds on success. We hope that opportunity is on their side.