For a market which is already shaky, in the last five days we have had FII selling of about Rs 20,000 crore. Even the whiff of a new Covid-19 variant is not going to spell good news for Indian markets.
In my view the news flow comes about and corrections happen and that is perfectly fine, but normally markets fall under their own weight and when they rise they rise when they become very light.
In March 2000, the market started rising when Covid was moving up very rapidly. So, it is all a question of how the market is positioned. The market is heavy. There is too much frenzy and euphoria and then reasons come about for the correction. Similar variant detections happened previously also. News flows have come and only around 100 cases have been detected at this stage all over the world and in the context of the overall infection or daily spread, that is miniscule. So let us hope this blows over because previously also, the South African variant did not spread around the world and hopefully this one would not either.
But markets need to correct to get over the excesses and that is what they will do and I believe that over the next few weeks we will get the markets coming down to reasonable levels and in the next one month we will also know whether we need to be really concerned about this new Covid variant or not. Things are in a flux but it goes without saying that in the valuation context, investors and traders need to be cautious.
How do you make sense of ’s price action yesterday?
As per the news flow which is in public domain, it did not make any sense for the stock to move up so much, especially given the fact that over the weekend, a major deal fell off for 35% of its total assets. The total assets of Reliance recedes around Rs 14 lakh crore and that Rs 14 lakh crore oil to chemical (O2C) is around 35% and so that will be Rs 5 lakh crore approximately. Those are legacy assets whose value is deteriorating significantly on a continuous basis and will approach very low levels over the next 10-15 years.
The entire story was that it gets monetised and that money gets invested into new generation businesses. That did not happen and some irrelevant news flow led to the stock moving up. My guess is it will be tough for Reliance to sustain and it will give back some of the gains and could also move lower if the investments come in the supposed new generation businesses where Reliance has to dilute stake on the growth businesses as it did last year in the Jio platforms and retail then it is not an ideal scenario for the minority shareholders.
Is it a good time to be a contra buyer in IL&FS? The stock has consolidated, QIP could be coming, nobody likes it, very few own it.
Overall, the housing finance business is not as great a business to be in as it was historically when banks were not competing so aggressively and other NBFCs were not aggressively into housing finance. Now everyone is into housing finance and banks and high rated NBFCs have a better positioning out there because housing loan rates are at the lowest level of the total loan disbursements which happened across the board in any personal loan segment or with a collateral.
In my view, pure housing finance NBFCs because they do not have a deposit franchise they will find it very difficult to compete vis-à-vis banks and the larger NBFCs. I would think that comparing a stock to historical prices makes no sense. People need to take it as it comes and I really have not evaluated it from an investment perspective. But overall directionally, for pure housing finance companies I am not very bullish.
At the current juncture are markets pricing in all the recovery trades or earnings for next two quarters?
I would think that they are factoring in for the next two quarters at least. The overall market itself is factoring in many companies for the next 10 years also and for many of the unlock trades for the next two to four quarters. Now the performance needs to come and the numbers need to back up the kind of stock moves which we have seen. In that context, for many of the unlock trades, the results of the next two quarters will become critical.