We are firmly in the middle of a very strong bull run. Is the underperformance of the broader markets finally behind us?
Yes, Some of the underperformance is starting to get reduced again. After Jackson Hole and Federal Reserve Chairman sounding dovish and divorcing taper from rate tightening, liquidity has come back. That is why markets are continuing to rise, not just in India but globally as well. We haven’t seen even a 5-10% correction for quite some time now. So that could be on the cards in the next few months.
We have seen outperformance in the IT sector. Everyone is waiting for the sluggishness of the banking sector to be behind us for the next big up move. Within the banking sector, we are not seeing the moves in Bank Nifty. Which are the winners that you are betting on?
The banking sector has been through some kind of consolidation and cannot seem to move out of this kind of range. We have been looking at other parts of the financial sector such as insurance and asset management companies because we are starting to see a lot of tailwinds for these industries.
For the banking sector, there are a number of concerns just surrounding whether we are going to get a third Covid wave and whether that would impact the loan book going forward. So that is a little bit of uncertainty that we have and obviously with the vaccinations doing so well, if that continues, maybe over the next few weeks, the concerns about the third wave might ebb and the banking stocks might start to do well.
There is a sudden uptick in power demand. IEX is doing exceptionally well today, NTPC is doing okay, Power Grid is also doing okay. Should one get excited about the uptick in power demand because power is one thing which is consumed when it is needed and could this be an indication of things getting normal?
Yes, I think that is what has been happening. We are starting to see green shoots across many different industries now as the broader economy starts to pick up. The kind of spending that was initially seen on cars or TVs or refrigerators, is starting to broaden out across many different sectors now. I was in Delhi last week and I found that most of the people in the hotel were not business people; people were there for leisure tourism. So there is spending across a wide range of goods and services now. I am not surprised that we are starting to see this broadening out of demand and that is why the power sector is starting to pick up as well.
In August, there was a 10% rally in Reliance, almost a 15% rally in TCS and also in HUL. These are heavyweights which normally move when there is a serious amount of money commitment. So what has changed for some of the haloed stocks like TCS or Reliance or Infosys that have rallied so sharply when markets have struggled?
There are two different answers for two different industries. On the IT side, it is not dissimilar to what we are seeing in the US. So if one is concerned about global growth and expects some slowdown, even then, there is going to be strong growth in tech companies in the US because of their growth dynamics. It is the same for the IT sector in India.
If you are feeling that the markets are overdue for that correction then IT is a good place to hide as we are still getting very strong growth because of digitisation which is giving extra wind to the IT sector. Even if one looks at Biden’s infra expenditure plans, it is the backbone of providing services to the more underprivileged and one needs more technology to do that and that is going to benefit the IT sector going forward as well.
As for Reliance, it is a combination of a number of factors including the launch of a new phone, the possibility of some kind of help from the government to telecom companies. So it has been a combination of those two factors but nothing has really changed on the ground for the business.