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Bull market began in 2013-2014 and is still intact: Ramesh Damani

Ramesh Damani-1200
Market veteran Ramesh Damani believes that the bull market is intact. However, monsoons and elections will lead to some consolidation. Themes like QSR, aviation continue to remain his preferences.

Edited excerpts:

Are we at the edge of a new bull market?

This is a question that engrosses us a lot of my veteran friends every evening, even those who have been in the market 20-30 years. And the question is did the last bull market end and a new bull market start in February 14 or are we at a break in the old bull market and now we are seeing continuation? I firmly belong to the latter camp. What we saw in October-December was a very rough quarter that tested us as bull markets do, and then it climbs back a wall of worry, which is what has happened. The fact that the market has tested its all- time high does not surprise me.

The bull market that begin in 2013-2014 -- six months before this government came power -- is still intact and I still think it has way to go. Whether you look at history, technicals or fundamentals, the sign of the top of bull markets that we see -- the froth in the market, the high contango rates, the euphoria on the streets -- have always been absent. I believe there was a very tough break in the market. Markets climb a wall of worry and they throw out the weaker players which is what probably happened in the last quarter last year.

What is your outlook on the correlation between markets and elections?

The evidence is mixed. To be honest, when I was a younger analyst. I used to fret a lot about what happens in elections, but let me give you two examples. In 1991. the Narasimha Rao government, which was a minority government at that time, introduced the most sweeping economic liberalisation programme in the 70 years of India’s economic history, got it passed through parliament and lot of the legislations now are a fact of life!

The dream budget 1997 that Chidambaram launched, again was as a part of a coalition government. It has often happened that Rajiv Gandhi with 480 seats could not do meaningful economic change but sometimes minority governments have done that. So, rather than focus and fret about who is coming, who is not coming -- over which we have very limited power -- we take two assumptions that we remain bullish on this country’s prospects and we want to buy great businesses. We always look for great businesses rather than try and find who is going to win the Lok Sabha.

Do you think that the bad news like NBFC crisis has been discounted by businesses? What is your advice to investors?

The global finance crisis is obviously over but the NBFC crisis is still playing out. Once the new government comes into power, they will have to make some hard decisions. I do not think this problem can be solved that easily but basically, we are very blessed to be living in a country with 100 crore people who are aspiring to a middle class life. A huge amount of investment is required in almost any sector -- be it housing, education, travel or insurance. The opportunities will be plentiful and one should not get distracted by all these happenings that periodically takes place in markets. It is the end of the world type of scenario. I think markets will find a way to conquer this and move higher.

Let us talk about the areas of opportunity. You have spoken about the QSI theme. Is that something you are betting on?

Yes, that looks like a secular opportunity. There are very few stocks to play to be honest, because it seems like as we eat out may be eight-nine times a month. The average for Asia is 12 or 13 meals. As you get closer to the Asian average, these businesses would boom because people want hygienic places, air-conditioned and with internet. Women will be working out of the house, domestic staff will be costly to hire and so people will eat out. The secular growth story that will take place will be, as one of my South Bombay friends say, because of fast food. But I think they are missing the point. This is a big country and if they have got clean hygienic food, people will be happy to go on either.

What about airlines as an industry? A lot has changed over the years and a lot of the business depends on crude oil prices. Do you see merit in the story?

Any time capacities are cut and pricing power introduced, that changes the game for the business. What has happened in the last 10 years is that the weaker players have been severely disabled or thrown out of the market. I am talking about Kingfisher, I am talking of Jet being on the ropes. The existing players not only get higher share but also better pricing powers. The fares from Mumbai to Delhi, Mumbai to Kolkata have started rising. The industry seems to be headed for much better times. I would remain bullish on that sector.

You have always maintained that as an investor one should look at the price. If you are getting things at the right price, should you look to buy metals, PSU banks right now? Some of them available cheap.

Well PSUs have been a favourite of mine. A lot of my friends criticise me for it. I think the mistake investors make is to look at PSUs as one entire basket. If you look at the oil marketing companies, MTNL and a lot of other companies in the same bandwidth, while they compare technology stocks with steel stocks and with insurance stocks, they put all the PSUs in the same bunch.

I remember a young analyst buying a company called Bharat Electronics at Rs 20. It was a Rs 160-crore market cap company. Today the market cap is Rs 24,000 crore. I am not recommending it because stocks are up 100x. A lot of PSU stocks have done very well. The government is disinvesting a lot of PSUs. There is some opportunity there because these are trading with the order that there is a strong visibility on the order book. They are trading at single digit PEs, dividends are assured because 30% profit payout. Maybe PSU stocks represent an alternate opportunity.

Another interesting theme you spoke of was the gaming space. What kind of value do you see here?

The gaming space again is very nascent in India but across Asia, in the MICE market (meeting, events and incentive travel market) in Japan, Singapore, Malaysia, Philippines, all of them have casino gambling to attract tourists and to encourage the local economy.

India has been the ostrich in the sand and not allowed that business to expand but increasingly with digital technologies available and with the increasing affluence of India, the government will start loosening the purse strings. It will start with Goa and then perhaps spread to other parts of India like Sikkim and other parts.

Once it becomes competitive, once Goa does that and attracts tourists, Chennai cannot be too far behind so they will also be there. So there are not too many ways to play it but if you keep an eye on the space, opportunities will show up.

You have had merit in the media space, is that something that interests you now?

It used to.

Not watching TV anymore?

Yes, there is only one in broadcasting. What is astonishing is that even as we look, suddenly people were not watching live broadcasting. Only one thing that remains that people will watch live and that is games, sports and in India of course, sports means 90% of the eyeballs go to cricket.

What about OTT themes?

OTT themes are not broadcasting, those will do fine, you know, content will always do fine. If you can produce a serial that people want to watch you will always do fine whether it is broadcast or whether it is OTT or whether it is on a cassette recorded it will always do fine but in live broadcasting the only thing that remains of value is cricket and the only thing that remains in cricket of huge value is not the five-day test match but the IPL. As you saw the number of IPL’s opening day it was astonishing almost one in six Indians was watching the IPL opener.

And the ad revenue growth there is crazy?

It is almost fabulous. They are meeting their fourth year projections in second year and they are really doing well. When the contract comes up for renewal in three or four years, it will be a blockbuster figure. There is a lot of opportunities. If you find ways to play that, there are some ways to play that. It would present a good opportunity for investors.

It has been the only show that has been watched for 11 years consecutively. Are you seeing great year-on-year growth?

Some teams are getting listed and that will provide the opportunity for investors.

You said monsoon and election. But you did not speak of earnings growth. Is that a key ingredient in the market mix?

We have been waiting so long for the earnings growth to come. When the year starts, you put in good projects, 15%, 19% earnings growth. I do not know what will happen out there. There are certain sectors that would continue to do well and like I have always said, I am not a big top-down guy. I do not look at the big macro or Sensex earnings. I look at more of my own individual companies and as long as they are doing well, some of these stocks will show handsome growth I am going to remain invested.

You said you had gotten advice years ago that the opportunity of the last 30 years will be dwarfed by the opportunity for the next 30 years. Where does the India story stand in that light now?

The wisest man I know who has seen so many bull markets -- who has done speculation, invested in a business -- when I asked, he said what was his best decade in investing and he said the next decade. He simply said the opportunities that this country presents to us are manifold.

There is a tendency to think the index has gone from 100 to 40,000 and so, the opportunities are over. Where are we going to get the opportunities? There is nothing to suggest the index cannot be 200,000 tomorrow. I am predicting that.

If you compound 8-10%, ultimately in 20 years we will get there.

The opportunities -- because of digitisation, disintermediation, a more open economy and deregulation -- will be phenomenal for entrepreneurs of today. If you are a young analyst sitting today, I would be very excited because there are some great businesses already being born or will be born over the next few years.

Any other areas of opportunity?

I am going to look at individual themes. We like QSR, we like the move to organised retail, we like some of the select PSU stocks, we like gaming and all these businesses.

Consumer businesses are going through some sort of headwinds. They are showing de-growth in sales which is very surprising for them. If you remember, recently in America, Kraft Heinz fell 20-30% in a single day and when the great Warren Buffett was asked about it, said you know Cosco built a private label business of equivalent value to Kraft in a period of 20 years. Why is Kraft spending so much money and what is the value of the brand that they have? It has given a lot of analysts thinking on how should we value the brand. So, we are seeing some sort of slowdown at the edge.

I think India is still a nascent market where people still aspire to brands. So we may not feel the full effect of it but it is certainly something to think about.
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