Now the Birlas are getting into the jewellery business. They have the balance sheet and more than that, this time they have the aggression. Aggression is the right word. I look at what they have done in the paint segment, two years and they have disrupted the entire paint segment. Can the same happen to the jewellery sector? Do you think the PE multiples for a Titan and Senco or Kalyan and other companies could come down?
Sandip Sabharwal: I was very clear that the new paint entry would disrupt the market and cause problems for the existing paint players because Grasim as a company had a distribution network and UltraTech is their subsidiary. It is well known. They could leverage all of that and paints was a segment that was not so difficult for them in my view.
Although the existing company has a significant brand in it, they can build that. Jewellery is a tougher ask because that is a high-value purchase. Brands are built over time. So, let us see how it goes. Their entry per se should not be taken as a negative. So, you can consider the valuations of those companies and see whether they can be bought or not. But to sell Titan just because Birla is entering the jewellery segment, will not make any sense.
At this juncture, how much cash would you sit on? What would be your composition of mid and smallcap stocks and would you remain fully invested? I guess these are three factors that will decide what your portfolio will do for the next six months. What should be a very basic approach?
Sandip Sabharwal: One is that markets have been rising, so people think that they will never correct. So, there will be a correction, and the more the markets rise, the correction could be more severe. So, to that extent, I would think carrying a 15% cash position makes perfect sense. Unlike a typical cycle where one would think that midcaps would correct more in a correction, they could but then on an overall basis, we have to take a company-wide approach.
I would not say keep a midcap, largecap kind of approach. I think it has to be a company-wise approach where we have to be careful what companies we are holding and valuations become more and more important as markets become higher and higher. Because at a 52-week high, irrespective of what price you have bought what stock, most people are making money, so the markets become more and more complacent and the reverse is in the bear market. So, this is a time where having some cash on the sidelines makes perfect sense because when markets are rising every day, you do not want to keep cash because you think you are losing out. But if markets have risen so much, you have made double the normal CAGR you would make for most investors over the last three to four years than over a 20-year cycle, so then it makes sense to be cautious.
How you are reading into Cipla’s quarterly numbers. Goldman Sachs, for instance, believes that the trade restructuring has hit the overall India business. How are you looking at the current valuations and where Cipla stands amidst the others within the space?
Sandip Sabharwal: So, the result delivery was pretty decent. Most of the pharma companies are coming back and showing results that are above expectations, Reddy’s results are also strong and it is a space that is not very owned, like it is not an over-owned sector per se. Most of the large holdings of funds do not concentrate on pharma stocks, unlike the position five to seven years back. So, from these levels of the market, pharma could be an outperformer.