Let us begin by getting in your thoughts then on the latest brokerage notes as well that are coming in from something like a Zomato. JM Financial has raised the target price and categorically said there is no signs of slowing down. Your views?
Yes, so I think among the new generation companies which got listed, Zomato has been the one which has shown the fastest turnaround. Now, the pace of turnaround I believe is already built into the stock prices and this is a normal phenomenon when price reaches a particular level, then the brokerage upgrades the price targets. But the price target is aggressive. So, even a small amount of slippage in expectations can lead to a sell-off. So, I would think that the stock is more than fairly valued at this price. I would believe that the valuations are on the higher side at 196 levels. IndiGo, who would have thought a year ago that a stock which was at 1800 would go all the way up to 3700?
Yes, we actually thought that and I have been lucky enough that we have ridden the entire wave of IndiGo. Now, we are seeing some downgrades coming from brokerages. I think it is more a matter of like that Hindi saying goes, baithe baithe kya kare, karna hai kuch kaam and so on. So, I think that is what these brokerage analysts are doing. They are not recognising the huge competitor advantage that InterGlobe has despite the crude price surge and what is happening in the aviation market. If you look at their profit delivery in the weakest quarter, it is so strong. The only reason the stock has remained cheap is because of the selling by the ex-promoter on a continuous basis. Otherwise, the stock price could have been much higher than the current levels.
The summer theme is becoming like a powerful theme now. You bought into Voltas, but looks like we are in for a hard summer. So, what else apart from Voltas could be a bet on hard summer?
I think some of these beverages companies could do well but again you have to look at valuations. Something like Varun Beverages, etc, should have a good quarter, but then the valuations are the high, so I am not sure whether at these prices you should actually be jumping in. I think along with the ACs, the fan segment will also do very well.
So, something like a Crompton or a V-Guard which we have bought into because they are also reasonably big on the fan side and ex of other durable they could do well.
So, I think these are broadly the themes which from a stock market perspective could do well. Then, the power demand could go up and that could benefit some of the power companies supplying on merchant basis and I think that those stocks already also had some sort of run up because of this.
Power play according to you. I mean, would you bet on a power utility? Would you bet on power transmission? Would you bet on power financing? Would you bet on power equipment? I mean, power, when you say power, it is becoming almost like a very powerful subsector of the market now.
I am very sceptical of power generation companies because of the political interference that can come in at any stage on energy prices, etc, and non-payment by distribution companies, etc. So, I think that has made me miss the power generation stories, although these stocks have done extraordinarily well. So, there is some transformation on and people are playing that. So, the way I have played it more has been through the transmission or the transformer segment. So, I think those have done very well in transmission, two-three companies, KEC, Kalpataru and a couple of smaller ones.
So, we own both KEC and Kalpataru. And in transformers also, there are several companies and transformers also is a very long-term theme because globally also transformer demand is very strong. And with AI picking up and more of the renewable energy additions, the transformer demand is likely to increase much more than the increase in the power capacity because renewable energy requires more transformers. So, I think that is another thing which people can look at.
Sharad has kept one wall blank. It has Sandip Sabharwal written on it. I have told him that he should hear the answer and then fill it up so that in our future links we can carry Sandip Sabharwal’s portfolio also.
It is better not to have your whole portfolio revealed.
But what changes have you made? I mean have you made any significant changes between Jan and now where you have said okay I bought the stock, I am happy to book my profits.
We have been adding some contrarian stocks where I do not see any triggers in the near term, but I think those stocks have got beaten down so much that they will ultimately perform.
So, we have added small positions in stocks like Page Industries, Vedant Fashions, etc, all of which have fallen now almost 40-50% from the top because I believe these are very strong companies with good franchises. There are no near-term triggers but eventually as the turnaround happens these stocks will bounce back.
This hot summer which may be realistically unfortunate, it could have deep rooting impacts on vegetable prices, on inflation, how we would look at interest rates. Do you think markets need to get worried about all these variable factors? Today it may look like hot summer but the impact of that would be on agriculture, the impact of that would be on tomato prices, the impact of that would be on irrigation, tomato. I just get a sense that it really could be a bother going forward.
I think there are two ways of looking at it whether it is glass half full or glass half empty. So, glass half empty theory leads you to believe that vegetable prices will definitely soar. We could see milk prices also soar in summers because it is very dry and the water and moisture is not available. On the flip side each and every weather forecaster both in India and globally have forecast the return of La Nina and above average monsoons for this year. So, the glass half full approach says that look beyond this spike and look at what will happen subsequent to that. So, I think you need to make a choice. But in the near term, yes, I think food inflation is being understated and to that extent a few months CPI data could actually surprise on the upside.
A quick call on TCS in terms of what exactly you are expecting.
Expectations in general are quite muted and rightly so because of the commentary we heard from Accenture, Cognizant, etc. So, now it depends on what they actually deliver because the stock is actually up. Stock is trading near 52-week highs and the growth expectations are muted. So, if results actually disappoint even on the muted expectation, then I think we could see some sort of sell-off play out.