Were a bulk of the big HNI clients you handle able to participate in this furious two-week rally or did most of them miss it?
We are investment advisors and most of the portfolios are geared for the long term. While we had raised cash in Jan, we were negative on the markets and we are sitting on our model portfolio; about 17% cash. It is not that we have participated in the rally in a big way because these are bear market rallies and they are extremely sharp. The risk on trade was internationally there but we are not convinced that this rally is here to stay. We are cautious especially at the level of 10,000 and above. We would be happy raising more cash. So we did not use this rally to buy anything into the market but we remain cautiously invested in everything that is there in our model portfolio.
Let us talk about financials. They are clearly on the receiving end as far as bears are concerned. What are your thoughts on Bank Nifty and if you could share your thoughts on some of the big lenders; the more popular ones like Bajaj Finance and the likes? Do you have any contra calls?
Not really. We do not have any contra calls because anybody who is a lender in this market at least for the next six months is going to face problems. We have in fact done a report today which we have released where we have spoken to people who are fleet operators and how they are facing problems to even pay EMIs. So the problem runs deep into every sector where there is borrowing. I think that is going to continue at least for another two quarters, if not more. We are not giving a contra buy call.
What you saw on the Bank Nifty was a drop right up to 17,300 odd levels and right now, in this rally till about 21,700. These current levels of 20,000 which we have just broken today is 60% retracement from the bottom. If you were to break 19,500 then you are back to those levels and you can go back to closer to 17,500-18,000; I think pain is yet to come. This was a risk on rally where people saw money coming back quickly especially into the high beta banking stocks which have taken the brunt. But I think sanity will prevail over the next two quarters. I think there is still pain from these levels also which you will see.
In the three months gone by, almost 50% rally has set in Reliance Industries. We all know fundamentally how the company is transforming and has almost become a magnet for large global marquee investors in terms of deals. Some say the rally has been too furious and hence will fizzle out and others say it may have some more steam. What does the long term charts tell you as far as Reliance is concerned?
The chart formation is obviously extremely positive given that this is a stock close to its 52-week high when the market is nowhere close to it. We all know the fundamentals for it but does it kind of go on a tearing fire from here? We have seen incrementally every deal not get the same kind of momentum that Facebook deal got for us. However, it has maintained the stock in this range. What I can definitely see from the chart may be a relatively outperformer. We are talking that Bank Nifty would probably go back to similar levels or at least give a deep correction from here. So that will be a sector or that will be one stock where you can see relative outperformance. By relative outperformance I mean there is a possibility if the markets really see a bad correction, RIL going back to Rs 1,380 probably 1,400 which is still from the current Rs 1,580-1,590 levels is still about roughly a 10% to 12% correction.
But if the markets give you a 17-18% correction and this is giving you a 10% to 12% correction then it is relatively in the outperforming space. So yes, it will outperform; you can probably look at levels once Rs 1,720-1,730 gets taken off, which could be anytime in the next three to six months. Then you can look for higher targets but as of now Rs 1,600 is going to pose to be a resistance and since it is listed today, we should look out as this could very well be for the short term. In the immediate short term, it could be a top formation for say about 15-20 days.
Let us also talk about the pharma space. What are your thoughts on the pharma rally? Is it getting over owned or do you see more– and if any stocks which you like over there?
Fundamentally if you see, most of them have rallied very-very furiously; right from Dr Reddy’s to Sun Pharma to Cadila. We feel that now at this level, the upside is limited. However, when the market goes into a phase where there is a risk averse attitude, this is the space to hide. When it is a place to hide, people will hide irrespective of what kind of levels it is at. So we do like Dr Reddy’s, we like Cadila at this time but if I had to do fresh purchases it would be on a correction. It would be like a cash equivalent. So maybe if the market falls, these will not fall or it will definitely be relative outperformance to a very large degree. But do I want to buy it at this high valuation? I would probably wait for at least a 5-10% correction before I kind of enter in. And we do like Cadila out there and we have Sun Pharma and Dr Reddy’s in our portfolios.
If you could share some stock picks for the medium to long term. I just want to understand what is looking positive from all the three universes: midcaps, largecaps and smallcaps.
Portfolio is basically geared towards largecap right now. The midcaps and smallcaps are less. Midcaps again are geared more towards the gas companies; though IGL, MGL, Gujarat Gas those look good, they are not trading stocks. They are something you can hold for a year and a half or two. The basic switch that we have done is; a lot of funds have been reduced to banking, get nil on NBFCs and probably add telecom in a big.
In telecom we have got all the stocks which are there; all largecaps except those that need to be added. Probably the idea is that you get new sectors which perform in every new rally and probably banking would, if not give up, completely share the mantle of indices having higher weightage to telecom. So I think it is a very simple straightforward strategy and there is no complexity out there.