You are not going to get a cheap market. So with money moving in all the time looking for dips to come in, it would not surprise me if in the next five years it grows 13-14% compounded every year.
Talking to ET Now, N Jayakumar, Prime Securities , says if you were to go for passive investment, through compounding you are getting significantly more returns than you ever got.
What is your view on the pharma sector?
Large pharma companies are facing huge challenges. There are one or two which are standing tall and is there for everybody to see. These are the companies you have to have. It is contrarian. They are also inexpensive and in a marketwhere forward PE is at 22-23 times or 20 times, you will have these companies quoting mid teens. So, why would you not buy?
Two, IT faces much greater challenges. In pharma, to my mind because you needed to productise yourself. You needed to be in different markets. As you know pricing is a huge issue etc, but there are spaces even in the restructuring space. For instance, how many people understand restructuring? It is difficult to assume that you can come and talk about four stocks that will withstand pressue but you need to go through cycles with them to make money.
Investment from a stock perspective is far more difficult today than ever before because information flows so much. But on the other hand, if you were to go for passive investment, through compounding you are getting significantly more returns than you ever got.
80-85% of your money should be index investing for most people. I am not saying that is for specialists who whether out of our own intellectual arrogance or otherwise, want to be in individual stocks but 15-20%, of course, you can be in midcap stocks but you need to have that deep dive. If you do not have the stomach to take a 30%, you cannot sit and say I must get a 10 bagger.
Would you like to take a view on the index? Given that the earningsprojections we have started last three years with double digit assumptions, by the end of the year we scaled them down to single digit and the cycle starts again. I get a sense that a similar cycle would be at play. January 2017 estimates were different. August 2017 estimates have been slashed down radically.
I tend to agree with you. The way I see it, money has been moving into equity, out of gold, real estate, etc. Overseas investors have not really bought into India in a very significant way in the last two years. So if that also turns, because today you are seeing political stability with economic stability and macro stability for the first time and interest rates are coming down.
When was the confluence of all these events happening? You are not going to get a cheap market. So with money moving in all the time looking for dips to come in, it would not surprise me if in the next five years it grows 13-14% compounded every year.
You have always believed in identifying inflexion points whether it is for the industry, sector earnings or profits. What kind of inflexion points do you think we could be staring at for next two to three years?
The big inflexion point is in terms of events in the corporate space. One is the entire business about the NPA resolution. These are big inflexion points for big companies to get even bigger because now they will be acquiring capacities. Steel is a big case in point. Power is another case in point. Textiles could be another space which is crying for consolidation.
On the other hand, this is the inflexion in terms of money getting cheaper. So overseas money, pension money… Pension money is hankering for returns. Any yields of any kind they are going at half and one per cent returns overseas. So, ension money comes into the restructuring space, assets are now available. Banks are able to solve their problems out. Capital is no longer a constraint for good companies to acquire.
The big inflexion point was the resolution of this problem which is happening, that is one. The second big thing is the free flow of money into the debt markets. The limits are opening up all the time. Interest rates are likely to remain subdued for long periods of time. If you have that visibility both in terms of debt markets and in terms of the impact on the equity markets, the yield expectations will also be much lower from equities.
You are going for debt yields which are 10-year yields of 6.3% or 6.5%. Why would you expect equity returns of 30%? You do not need to. So even at 10-12% compounded, people are going to get significant amounts of money.
The big inflexion is this realisation that index investment and money moving in because those are gravitational pulls that will take money to the largecaps in preference to the small cap because you can put money to work, you can put more money readily to work, etc.
Three, the entire thing about domestic savings now decisively moving into this space, are again big inflexion points in favour of I would say a) passive investment and b) much, much long-term investment.
Whether it is retirement planning or this entire thing about mutual fund day being celebrated every month with SIPs ruling the roost — these are tectonic shifts in the backdrop of stable politics and stable macroeconomic factor.
The condition could be better. From that perspective whether the Nifty corrects from 10,200 to 9800 or 9600 does not matter but for the stock specific guy, any 8-10% correction in the market becomes a great opportunity to identify those B group stocks where you have the stomach for your 10-15% of the portfolio.