I do not think there is challenge in terms of growth going forward because the Indian market offers a significant growth opportunity. General insurance a significantly under penetrated category, life insurance is still reasonably under penetrated category. I think these are reasonably good quality companies and I remain positive on that them I would strongly caution advice against investing only for the listing pop.
So where are you seeing buying opportunity in the market right now?
In my opinion, the investment cycle is picking up and a very big trend is ahead of us and that is where I feel risk reward of investing right now are in favour. For example, affordable housing is one segment where huge amount of stock is getting built, order book is getting built and over next 12 to 18 months and much before as we get into the election mode, you will say this activity getting accelerated and this will have a ripple effect on lot of things on construction companies, on companies which supply material to building affordable housing stocks.
Currently there is a fair amount of scepticism around how to play investment cycle, whether it is really happening or not. I do believe that over next 12 to 18 months you will see superlative returns. The risk reward of investing into this segment is in my opinion fairly high and institutional activities are low in this segment. The confidence compared to any other sector is lower but I do believe that one should seriously look at that.
You mentioned that investment cycle is likely to pick up. What is the best way to bet on that? Should one buy corporate banks, power companies or is infra names the best way to align your portfolio with a purposeful economic growth in next two years?
The investment cycle will have a rub off effect on a lot of sectors. EPC companies are a big theme to play. There are lesser number of companies and so lots of work is coming their way and I think they will deliver. I do not think valuations are expensive out there at that point given the growth profile ahead of us. Some of the housing finance companies which will be catering to the needs of affordable housing and normal housing, have a huge growth run ahead of you that can deliver reasonably good return.
Some of the consumption companies — whether in building material space or electrical related space that goes into affordable housing – any segment in my opinion is doing reasonably well. Look at power cable business in consumer space growing well,. Consumer durable is reasonably doing well Those are the segments you will find doing well and as long as the growth is there, I do not think we will see case of derating taking place.
I would kind of bet on the stocks and segments where you will find growth coming through reasonable valuations and you can take a sort of bet on these are some of the sub segments. Other sub segments where I am seeing huge amount of reform led sector like chemical and fertiliser where a huge amount of investment cycle is lined up. Over next three to four years they can deliver superlative returns. After a long time, we are seeing industry dynamics changing structurally.
Why is D-Mart commanding a valuation of Rs 70000 crore. What explains this one sided move in a stock like D-Mart?
Definitely it is a euphoric situation. Whenever in a market, in one segment of stocks, there is a high quality company, low floating sstock and investors are just cornering those stocks or buying and holding there for long term, this kind of set up happens. In many such stocks we are seeing unsustainable valuations or over expensive valuations sustaining at this point in time. Now the key question to ask is that from here on over next even five-seven years will the investor deliver superior returns? I do not know, I do not think so.
In 2000, some of the IT majors were trading at 100 PE. I do not have any doubt about the quality of the D-Mart business model, the management and everything else but again every good company, good quality management does not necessarily mean a good investment. From here, can you make significant returns? It is definitely in the zone of euphoria or whatever you can call it. One has to be kind of very careful before investing into this kind of market.
Would I be stretching my luck if I ask for a Diwali idea for our viewers considering the festival is just a week away?
Affordable housing is a theme. In my opinion in next 12 to 18 months, focus on anything around affordable housing and you will make lot of money.