Currently all asset classes are witnessing what could be called a synchronised sell-off. What do you make of that?
They are all very highly correlated asset classes except US treasury . So when they rally, they usually rally together. When they fall, they crack together as well. So, it is not very surprising at all.
So where do you see the fundamental base for this market -- 16000, 15000, or sub-15000?
I do not think we are headed sub-15000 unless we have absolute collapse of earnings or some big risk on legislature or regulation. 15000-15500-16000, I do not think we are going to break that.
You have always had a contra approach. In beginning of the year, your recommendation was to sell emerging markets and buy developed markets, last year your top recommendation was to buy Ranbaxy and sell Reliance Industries . Given the kind of environment we are in, where do you think margin of safety is missing and where do you think margin of safety is present?
Shankar Sharma: That's hard to say, but obviously some of the retail players look very expensive, that's one. I do not think infrastructure is still cheap enough to get very attractive. I do not think power utilities are cheap enough to look attractive. So there is a reasonable mis-pricing even now.
After the kind of correction that the entire auto space has seen and in particular Tata Motors, is it cheap enough to get in now?
It was cheap enough at 1100, the market's concerns over higher capex numbers and some margin contraction has lead to the stock correcting quite sharply. I do not think there is huge immediate downside to the stock.
But at a time when cost of capital is moving up, disposable income could come under pressure. Why are you still bullish on autos?
They are currently already showing signs of fatigue and obviously they have run really long and hard for the last three years. So it is probably due even cyclically for a slowdown.
Given the current environment, why do you like stocks like Tata Motors and Bajaj Auto?
No, Tata Motors we do not like because of the domestic situation anyway. Our call has been always the JLR end of the business and as far as Bajaj is concerned, that's a relatively more immune part of the auto space given its export dependence. The problem there obviously has surfaced because of the DEPB, but we will see how Bajaj Auto ends up handling that.
If I look at the pecking order for large-cap IT, Infosys Technologies is underperforming the sector and it is also underperforming the market leader TCS, do you think the scales could reverse in favour of Infosys Technologies going forward?
I do not think so. It is very hard to replicate what Narayan Murthy and Nandan Nilekani were. On the other hand, I am told by insiders and TCS that the new management is very aggressive, very entrepreneurial, very drilldown, very micro focussed and he is really driving the business very hard and that's clearly showing results. So the gap is going to keep widening between TCS and Infosys.
What are your thoughts on Wipro?
True, management model is also coming under threat. Again these two are very venerated companies, Infosys, Wipro and it is unfortunate they are going through these problems. I do not think it is easy to fix management problems, especially for the kind of companies these are because whilst they have been professionally managed at one level, they are still very dependent on the family or the founding people in these companies. So it will take time for them to fix the management issues. I do not think it can happen overnight.
Are PSU banks looking attractive for a 10-15% trade in and trade out?
Yeah, 10-15% you can buy a lot of stocks and make those kinds of moneys, but whether you can make 50% because any serious investor or institutional investor, they want to make at least that much. That currently does not seem very likely.
Tick mark some names for us, stocks which you would like to buy on decline, stocks where you think a 15-20% appreciation should be expected or anticipated in next 12 months?
No, I would be buyers, and we are very aggressive buyers of pharma on declines because both the domestic and the export stories are very robust. The domestic stories again are big consumption stories. So we have liked the sector for two years, and we think at any decline, they would be great bets.
What about the entire pharma space? Apart from Ranbaxy, all other pharma companies are approaching or already sitting at near all-time highs. Why is it a buy for you when the market itself is looking weak?
I do not think that is a bad thought at all. If you have to remain invested, then being defensive is probably more rewarding. If for nothing else, it is showing great relative strength, which is always a good sign. So the pure macro momentum looks to be in their favour, but even on a fundamental basis, we like what they have to offer on the export side, which is the big global opportunity and the domestic side, which on the chronic side is showing great growth potential. The lifestyle diseases, that segment is really becoming very important here.
What about OMCs? Would they classify as a buy for you if crude prices are to come down further from these levels?
Usually they work in that fashion but obviously there has been a cloud over them, whether it will finally see the full decontrol come through or not but as a trade, they are always good for a 10-20% move if you bet on crude coming to $70 or $80 or $85.
Final thoughts from you on Reliance and what would you do with this stock sub 900 levels?
The problems seem to be refusing to go away. The core fundamental problem remains the production on the KG-D6, but around that there are issues and as recently as what the CAG has pointed out that they have gold plated the capex and CBI is probing that as per the news reports today. So all those things are not very comforting for investors in the Reliance stock.
