Be realistic, sit on cash and accumulate good quality stocks: Deven Choksey
Promoter groups should consolidate and stay focussed in businesses, he says.
Is it time to put money to work or is this the time where you need to clean up whatever you can get?
The obvious view point here is that you sit tight in a situation like this and stay with good quality stocks in your portfolio. Some of the good quality stocks have also fallen and it is going to test your patience. We are observing that the market takes time to reward good quality stocks but they keep getting rewarded in subsequent period of time also.
Today there is a situation of fear in the marketplace. People are unsure about where exactly some of the banks or the NBFC problem could hurt or hit some genuine companies in respective space. That is where we are telling people to stay with good quality promoters and the companies. Some of the stocks in the midcap and even in the largecap space are becoming attractive now and one should start looking at them with an investment horizon of one year and above.
This fear factor will recede at some point of time and that is where we will find value in some of the good quality investment stocks which can reward you eventually. It is time to remain a little bit cautious. That does not mean one should be a pessimist. This country and economy offer huge opportunities. So do not be pessimistic. One should be realistic and sit on cash for some time and accumulate good quality stocks.
Will you be a buyer in Emami because the supply promoter overhang is clearly over?
One sensible thing which is happening is the promoter group is basically paying off their debt and whichever way they are paying off, it is a good thing to observe. The second most important thing and that is where I would like to see the direction coming from Indian promoters. They are probably spread too thin in too many areas of business. At a promoter level, you should have a journey in some select areas and try and make the size as your destination.
Many of the promoters have spread into too many businesses and that is going to be a problem area for them. The sooner those promoter groups consolidate and stay focussed, where they can register their mark by becoming a right size company I guess would be the one thing to look at.
As of now, we do not get that kind of a signal from any of the promoter groups including Emami and that is where discomfort would be since they are spread too thin, It is not the time to look at them even though they may be correcting their past and bringing capital back to give shareholders relative comfort. I would like to see a clear focus on a select group of businesses and not too many areas.
Earnings are not there generally and good quality stocks are super expensive. The slowdown in the consumer space is a reality and the delayed monsoon could create further stress on the agrarian economy. It clearly appears that for next 6, 8, 10 months, this market is gone.
There are concerns over some of the factors which you have mentioned. Monsoon is definitely a concern. In next two-three months, we hope to get good rains and that is how we would probably remain relatively more confident going forward.
As far as the consumption space is concerned, the solution lies in bringing down the rate of interest. Today for a variety of reasons, the banks and institutions have not been able to bring down the rate of interest. May be the argument going forward would be that can the country bring differential rate of interest wherein on one side you have the infrastructure projects which needs investment but which are not investing because of the high cost of funds. On the other side, the consumer wants to spend again and needs to know where to put his money at a lower cost of funds. This is a situation where a differential rate of interest could help relatively better investment on the consumption side as well as on the infrastructure spending side.
What is common for both the sectors is that if an increase in spending takes place, then that may lead to revival in the economy or growth in corporate sector earnings. So, one is going to influence the other. Lower cost of interest will influence the higher rate of growth and that is where one would like to argue for bringing down the rate of interest. How soon, how fast will depend on the actions from the government side.