Shashank Khade, VP - Portfolio Management Services, Kotak Securities feels that the value that is right now emerging is clearly in technology, in auto and in FMCG. Valuations are really cheap right now in these three sectors, he feels.
Excerpts from CNBC-TV18’s exclusive interview with Shashank Khade:
Q: What have you made of the mayhem of the last few sessions? The week gone by has been clearly troublesome.
A: I think given the fact that the markets had actually stretched quite a bit in terms of valuations, and by and large the market was dominated by retail investors to a large extent, the valuations had to correct. When, was going to be a crucial call here. Clearly I think the global markets not being stable has been the reason for this correction and it has been quite deep as compared to what people really anticipated.
Nowadays, the corrections actually happen fast and furious. It also means that the stability in the global markets only can bring back the markets to normalcy. Of course, in the meantime they will correct - a lot of excesses that have happened in our markets. So, be it futures and options leveraging or for that matter retail investors participating wholesomely, I think some amount of correction was to happen in these sort of tendencies. So, I think this is what the markets may tend to correct. If you really look at it, a lot of investors have had a good amount of attachment to infrastructure stories.
I think there is good amount of over-ownership in that segment; be it institutional ownership or for that matter retail ownership. I think there is large amount of ownership out here. So, a state of inertia would definitely prevail and people will tend to buy into these stocks as they correct. So, my sense is that the markets may tend to go ahead and rotate the sectors itself. The underperformance that you had seen in the last six to eight months may actually start looking good, because not only did it not participate on the way up, they have also participated on the way down, which clearly means that the valuations of these stocks have got much more interesting.
Sectors, in this sort of space would include FMCG, auto, technology, which may actually become extremely cheap in terms of valuations. So, while the infrastructure stocks may continue their consolidation and correction, it could be that monies may actually get rotated into the other stocks, which haven’t participated at all.
Q: How have earnings panned out for you thus far during the quarter? Do you think on average they have been largely in line or have they been better than expected? Where have valuations started emerging for you now to buy into as you alluded to?
A: If you really look at why the markets gave way - also. it has been that none of the larger companies that came out with results so far, gave a positive surprise to the markets. So, there was no thumbs up that one could give to any stock after their earnings. It has been seen that whenever the markets stop positively surprising, clearly that is the time when the markets really go in for a corrective phase. We haven’t seen many results coming up so far, though I think ICICI Bank’s results have been far better than expected.
The value that is right now emerging is clearly in technology, in auto and in FMCG. It is a call as to how much of the negatives in these sectors per se have been factored into these prices. That is the biggest call here. In FMCG and auto, the growth has not been as strong and that is the reason why these stocks have been really down and under. But valuations are really cheap right now in these three sectors.
Q: One final word on this entire liquidity issue that is playing out both on the cash and the futures side, in the context of what is happening in the primary market, do you think this is still a concern domestically or do you think that over time this may actually reverse the positions once these IPOs actually list?
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