You have fought Covid and come back very nicely. How are you feeling now?
Yes the two weeks were in quarantine and as a market man, sitting at home was difficult. But touch wood! I have recovered well. If you can sit through the next two months, you will be amazed on the upside which you will see in markets. It is good time to start buying and not get caught in the noise. It is once in a lifetime opportunity. Get into good stocks and you will make a lot of money because equities is going to be the flavour for the next two years.
How are you analysing the quality of numbers which have come in? If you include Reliance, about a third of the Nifty earnings already done. What is your view on the early commentary from some of the biggies?
Excellent. Look at banks. Who thought that ICICI Bank and Axis Bank will power their way? Look at cement numbers from Ambuja. It is telling us that the infrastructure or the cyclical rally is here to stay. Tata Steel is heading to Rs 1,000 after 11 years. Where is the bearishness? It is all in the mind. It is a new cycle which is telling us that financials, cyclicals, technology is leading from the front. The numbers are clearly surprising on the upside. It is just a gap of one or two months which you will have to analyse for a slowdown. Depending on that, you will have to keep your horizon.
You are saying that the big part of the rally is still ahead of us. If one were to play a moderately aggressive portfolio for the next three years, what kind of names would you recommend?
You will have to have at least 50% in midcaps. After seven-eight years of underperformance, midcaps are here to stay. Earnings are catching up, cost of money is low and business is robust. You cannot have cement numbers the way they are for steel. It shows peak level construction activities. I cannot tell you what the impact will be after three months when say 60 crore people are vaccinated and what will be the impact of reopening.
People are so fed up with this that there will be a huge amount of spending and aside from that, infrastructure capacities like steel and cement are telling us that there has been no new creation. I am very bullish on midcaps, especially midcap banks. I am very bullish on the cyclical rally and one has to be in good mutual funds which have that exposure. Aside from that IT and pharma will be the real icing on the cake. Sun, Lupin, Tech Mahindra are among stocks which are going to outperform.
What is your take on metals, especially steel?
It is a very difficult question to answer. A disclosure, we have been long on JSW Steel, Tata Steel and SAIL from much lower levels but we think that now to chase these stocks at the elevated prices would be difficult. We would rather get into names which are cyclically going to play on the steel side and that is all to do with construction, agriculture. Look at a stocks like Escorts. Escorts was Rs 1,450 and has gone down to around Rs 1,120. Escorts is a transitioned company. It is the largest player in construction equipment. It is playing a big role in railways and the tractor business is robust on good monsoon predictions and demand for agri products . Escorts is a very good proxy play on construction equipment, railways and the parent tractor business.
The same is the case with the SAIL. SAIL is the largest steel exporter and that has played out very well. But to justify Rs 115 price would be difficult. So do a SIP. I would not advocate to get into steel as a fresh entry at this price. I still think Hindalco is grossly undervalued on the non-ferrous side.
What is your take on the large cap PSU banks? Canara Bank loan book is almost around the same as ICICI Bank, but it never gets the valuation. State Bank also is hovering at the same price when it came out with blockbuster numbers in Q3. Where would the risk reward be better in your view?
A mixed basket. I think the Bank Nifty gives you all of that but I definitely think Canara Bank and State Bank are going to be rerated. A disclosure,
in this basket is our top pick. We think midcap banks are here to stay. Three names which I think can justify being doublers from here would be Bank of Baroda, a small bank like RBL and IDFC First which is now one of the largest NIM holders. We have all three stocks. We think that they could be huge outperformers. Midcap banks and PSUs are going to rule the roost.