“Wherever the valuations are very stretched, there is no harm in taking some money off the table. There have been cases even in the case of midcap IT when the valuations have turned expensive, Also in the case of cyclicals, it has to be seen if the commodity-oriented sectors can look at taking some money off the table. One should stay put in anything to do with banks, mobility and defence manufacturing,” says Gurmeet Chadha, Managing Partner, Complete Circle Consultants
How would you look at the strength of the Indian market? Has it caught you by surprise?
Some of it, yes. Domestic liquidity has been one of the key cushions during the last selloff by FIIs and if you do the maths, you have probably $1.5-1.6 billion of SIP inflows and another billion odd between the EPFO, NPS and insurance – almost $2.5 billion of very structural flows. That has matched and is reflected in the FII ownership which is down from 23-24% to sub 19% and domestic ownership has gone from 18 to 24%.
How would you look at the strength of the Indian market? Has it caught you by surprise?
Some of it, yes. Domestic liquidity has been one of the key cushions during the last selloff by FIIs and if you do the maths, you have probably $1.5-1.6 billion of SIP inflows and another billion odd between the EPFO, NPS and insurance – almost $2.5 billion of very structural flows. That has matched and is reflected in the FII ownership which is down from 23-24% to sub 19% and domestic ownership has gone from 18 to 24%.
Also, the Indian markets have done relatively well on growth, inflation and fiscal parameters. But to say that we are completely decoupled would be a little early.
The bigger question everyone is toiling with is whether this strength is going to continue or not. China is making a comeback. There has been a sharp spike in Dow and Nasdaq. Will it come at the cost of our underperformance or will it be a rising tide kind of phenomenon?
I personally think some consolidation is due and that should happen. While the Nifty is at 18,300, some pockets are severely down. Healthcare and especially in the API, CDMO piece, most stocks are down 30% plus – be it Divi’s, Laurus including the newest one which is Piramal Pharma which got listed.
Similarly, tech companies have seen a correction and anything more closely linked to the global supply chain has seen correction and anything which is more domestic economy oriented, has done well. This might continue for a while. I do not think we are out of the woods yet. The slowdown is real and some of it will play out. Some consolidation is there but at the same time, there will be individual opportunities. For the next few quarters, it is a stock pickers’ market.
Where are you recommending profit taking right now? While it may not be an overall move in the market, some stocks surely have run up?
Wherever the valuations are very stretched, there is no harm in taking some money off the table. There have been cases even in the case of midcap IT when the valuations have turned expensive, Also in the case of cyclicals, it has to be seen if the commodity-oriented sectors can look at taking some money off the table.
One should stay put in anything to do with banks, mobility and defence manufacturing. It is more like horses for courses. One needs to measure the whole portfolio. One should not change much. The satellite portfolio which is more tactical is where one has to be pretty careful.
Defence and indigenous manufacturing is one space which the government has been pushing quite a bit and a slew of PLI schemes have been launched as well. Which stocks are best placed to make use of that opportunity and potential?
The one stock is Skyroot and
has a 10% stake which is one of our portfolio stocks in defence. It has transformed itself from a pure explosive and package explosives player to a broader player including a very good defence order book and they have very robust orders from the government on hand grenades, pocket ammunition, surveillance system, drones etc. They are invested in start-ups like Skyroot which are getting into satellite space. The stock has really run up well. It has been a bit of a multi bagger in the last 10 years.
Another stock which we track very closely is
. It is one of the highest defence order books and the segment of the revenue mix is also very good. So looking at repair and overall spares, they have almost a Rs 15,000 crore guidance which is a high margin business, almost 25% plus EBITDA margin. They have guided for 40-50 units on both helicopter and aircraft units.
Overall, the orders are well spaced out in terms of the one-year and two-year execution etc. We also like Bharat Electronics. That is doing well again. It has more than Rs 20,000-crore order book and recently they showcased the battery which is a non-defence segment, which is likely to be a sweetener. There are three, four stocks in our investment universe.
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