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Be cautious; 10-15% correction likely by the end of 2021 or early 2022: Dipan Mehta


By and large, I would be a bit circumspect over expanding the portfolio by putting more money into equities, says Dipan Mehta, Director, Elixir Equities.

IRCTC listed on October 14, 2019.. The IPO price was Rs 320. Its current market price is nearly Rs 5,500. Did you take part in this IPO, did you buy IRCTC after that and how do you feel about missing out if you did?
I bought IRCTC five-six months ago. So, we have managed to get some gain out of it but certainly we missed the IPO and it was very attractively priced at a time when the market sentiment was poor. One did not really know how to value such companies and the PSU tag kept a lot of investors away. But since then, we have been able to understand this business model far better and the potential is not just in ticketing, but many other allied services which it can offer.

The company is entering new lines of businesses like operating its own trains, the tourist routes which also opens up fresh revenue opportunities. So many things have gone positive for IRCTC and no doubt the pandemic had an impact on its earnings but we are going fast back to normalcy over there and in a a quarter or two, the volumes would be even higher than pre-pandemic levels.



With the entire real estate, construction, infrastructure revival, cement should also find buyers?
The sentiment in cement got a bit impacted by higher input costs, especially coal and transportation costs. There would be further pressure on the margins. There is only so much in terms of realisation that these companies can increase and also the capacity and demand are finely balanced. You may see a slight disappointment coming through from cement companies in this quarter or next. We are a bit cautious.

I think the companies which are likely to report the best earnings would be tech companies which have come out with a good set of numbers. Midcap tech companies will follow what we saw in Mindtree and then a lot of hope and aspirations are there on banking stocks which have been big underperformers. But now, they are pretty much entering the blue sky scenario in terms of higher credit offtake and lower credit cost as well.

The next few quarters could be the best ever quarters for the banking industry and these companies would regain leadership position. Apart from that, the consumer-oriented companies, some of the unlock trade companies will also come back into reckoning.

But within banks, are you willing to broaden your list or are you still sticking with the top tier names the HDFC Bank, Kotak, ICICI Bank and SBI?
The banks that you named could be kept as part of core holdings which can be held for five-10 years. But there are good short term trading opportunities as well as medium term investment opportunities in the PSU banks and some of the tier two banks like Federal Bank or IndusInd, RBL, IDFC First which are also available at attractive valuations.

Within the PSU banks, apart from SBI beaten down banks like Union Bank or Bank of Baroda,

also will see a huge alpha in terms of their corporate earnings because of lower credit costs. So depending upon risk appetite, one could go for the bluest of blue chip banks or then some of the banks which have had kind of a patchy track record but may be quite interesting in the next few quarters.

Avenue Supermart IPO was in 2017. The issue price was Rs 295-299. It is already Rs 5,000?
That is right. That is the magic of the markets. In the last three-four years, we have seen some superb multibaggers and great wealth creation opportunities. Investors who have stuck it out and who have invested intelligently are sitting on huge wealth at this point of time and the next three-four years also will be quite interesting.

We are seeing a lot of new listings, new businesses, new concepts and new age companies coming in and those also would create further value as we go along. We live in interesting times and the worst is over for the country in terms of the pandemic. In terms of all the various economic difficulties which we have faced, the next four-five years hopefully should be absolutely fantastic in terms of higher corporate earnings and a great deal of liquidity — domestic as well as foreign — coming into India. We are seeing a confluence of very positive factors coming in to create a virtuous cycle for equities.

A slew of IPOs from a Paytm to a Nykaa to a policybazaar are coming, which will be followed up by Pharmeasy, Delhivery, and Mobikwik. What are the lessons from D-Mart or an IRCTC so that these are not repeated again as they have turned out to be multibaggers?
When IRCTC and D-Mart came, it was a bear market situation and therefore the pricing was very attractive. These companies followed through with exceptional earnings and we had a fabulous bull market which is still underway. The problem with the IPOs coming at this point of time is that they are anyway priced to perfection, almost slightly overpriced.

There is a great deal of I would say controversy over valuation of companies like Paytm, Zomato and some of the new age businesses but nonetheless, Zomato has done well to say the least. At this point of time, there is a lot of froth in the IPO market. I would in fact like to be a bit cautious and not take very big exposure to the IPOs which are coming through in October and November onwards and just wait and watch.

We are due for a serious correction. About 10-15% correction could happen by the end of this year or early next year. I would say that on any purchases made from this point on, you need to be a bit cautious. I am not advocating selling off or going short. It is just that the risk return does not favour buying at these levels — whether it is IPO or the secondary market. There could be a few exceptions like the banking sector or may be technology and pharmaceuticals which have underperformed. One could of course get a few good investment ideas but by and large I would be a bit circumspect over expanding the portfolio by putting more money into equities.

If you had to buy one Tata Group stock, which one would it be?
I would go with

. That is a company which is undergoing transformation and clearly they benefit from increased data usage and digitisation which is taking place and they have expanded their products and services significantly and are providing complete solutions as well.

Of course, they benefit from the Tata brand name and the networking which they do with the Tata companies and the customers of Tata company, especially TCS, and in terms of return on investment and in terms of what it can grow on, its present infrastructure has quite a lot of potential and valuations are pretty much reasonable.

We are quite positive on Tata Communications. It has been a bit of an underperformer compared to how some of the other Tata Group companies have performed but the company holds potential and as and when the economy opens up further, there is a better chance for the management to cross sell its offerings and offer its new products and solutions. We will see higher and higher order inflows and all of these are more in the value-added space. It can certainly go a long way in improving the profit margins. The damage which is coming through on account of the voice business is more or less contained now. So, looking at good numbers coming in from Tata Communications for the September quarter and the next few quarters as well.



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