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Right time for bold investors with cash to pick up good stocks: Daljeet Singh Kohli

Quarterly numbers are not that bad but markets are reacting on each and every negative news furiously.

ET Now|
Aug 13, 2019, 04.43 PM IST
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Daljeet Singh Kohli-1200
Right now the feeling is that in the government, nobody is bothered about what is happening to the market, let it go where it is going. Unless you reverse that feeling probably sentiment will not change, says Daljeet Singh Kohli, Fund Manager, Valentis Advisors. Excerpts from an interview with ETNOW.

Just looking at Reliance and had it not been for the cushion it is providing, perhaps it would be the worst day for the markets today after that long weekend. Would you be willing to buy Reliance at the current levels given the commentary at the AGM? It does not seem like the stock is quite done with the upside?
We have a highly positive view on Reliance. Even before this AGM, we were holding positive view mainly because we believe that the backward integration and those gasifier activity that they have done on their petrochemical side and chemical business is a fantastic thing and that will add to their margins over the next one to two years.

They have announced already that all the gasifiers are now operational. When will they start contributing? We will see good numbers jump up there in the margins. Second, there is a lot of opportunity for unlocking value in those new businesses. Some of this was mentioned yesterday. In the last many days, there were some rumours on social media working overtime on high debt on the company.

So, without actually giving too much credence to that, there is much value lying in those new businesses where they can be unlocked and that is what they mentioned yesterday in AGM. Some of that is again a positive surprise for the market and that is what we have seen in the stock price. If they keep doing these things right and the new industries can start contributing with the capex cycle being over, we will probably see good numbers from these sectors.

So, oil and chemical business will do its own bit, adding margins and stability and the new businesses out of capex cycle will also start contributing. The next few years, will be a very good time for Reliance. We have a positive view. Now this is not a recommendation because we talk about the specific stock but this stock is a heavy weight on the index and today it is entirely driving. But it is not a recommendation from our side.

What do you make of how the markets are reacting to every news?
There is risk aversion everywhere. The quarterly numbers are not that bad but markets are reacting on each and every negative news and that too furiously, which is quite rare to see! Maybe this is the end of that cycle where the fear and cautiousness is maximum. That is the time when people overreact. Many times, we have seen irrational reactions, sometimes on the exuberance side. This time, it is happening on the opposite side. So it is a very, very bad sentiment.

Actually the sentiment is much worse than the actual numbers and the actual problem. It appears to be exaggerating the problem. Normally though it is not that big an issue. The market is waiting for some kind of reaction, some kind of activity from the government side, maybe a stimulus or some action has to be taken. This time, it is actually required. We have seen in 2008 also, these kind of things were happening. Ultimately the market stopped when the central banks stepped in, when the authorities started taking note of that.

In the current situation, a similar kind of action is required. Now in what way, what fashion, that we can debate. There can be many other options and ways of doing that. But this time, just to boost the sentiment, just to bring back that confidence, there has to be a message that there are problems and we are taking care of those problems. Till the time there is no concrete action, the market reaction will be like this only.

Last week, meetings took place between the finance minister and key bankers and industry voices and the sense was that while they are taking cognisance of the challenges and the slowdown within the space, there perhaps is not any alarming sign to get up and do something immediately. Would these steps be enough or is a lot more required to change sentiment?
A lot more is required to be done because just meetings will not help, action has to follow. Hope rally has been there for the last eight years now. We have all been talking of hopes this will happen, that will happen; this government will go, someone else will come and they will do something; earnings will come back but it has not happened. There is only a point till which all these hopes can work. The last few days, we have seen that there are a lot of meetings happening and probably some action will be taken.

It may be true that things are not as alarming as the news flow is making it out to be but this is the time to act and bring back that confidence. Sometimes, just the talk can help bring back that confidence and sometimes you need to do a bit more on that.
y Certain sectoral things are required like autos require some helping hand. NBFCs require some helping hand. The wish list is for 10 things even if just one thing is done, that takes care of everything else.

Right now the feeling is that in the government, nobody is bothered about what is happening to the market, let it go where it is going. Unless you reverse that feeling probably sentiment will not change.

Would you be a buyer in some of these auto names, like M&M (down 5% now to Rs 520)? Maruti has corrected a lot, a lot of auto ancillary companies have also corrected quite a bit?
No, our view is that valuations have come to attractive level but to initiate a buy we need to see the growth and we need to see the reversal of the pattern. As of now that pattern has not reversed. Unless the numbers start reversing in terms of monthly production, monthly sales, we will not initiate buying in any of these companies.

What do you make of the lot of M&A buzz that is going around? A lot of promoter debt has been on the table and they have been forced to sell a part of their businesses or their stakes. Do you see opportunity in that space?
If somebody has cash he is the king at this time. This is the best time to do any acquisition because you will get a good quality asset also, at a depressed valuation. So that goes without saying but the thing is that you have to be cautious. The guys who have money they need to have that confidence. The problem is of confidence, ultimately in this entire talk what we have been saying is that people should have confidence that growth will come back, it may be disturbed at this time but it is not destroyed.

As long as that confidence comes back people will do that and those who have cash obviously they will want to look at those kind of things where they can get a bargain hunt, they can get a good price. In good times nobody will want to sell or sell at a much higher price than the actual fair value. This is the time to get things at a fair value but again at this time, it is the same chicken and egg story. Do you want to have that confidence and at this time the confidence is at the lowest so you want to preserve your own cash. We have seen many companies holding so much of cash and are still not going for any expansion saying that we want to preserve our cash. So a kind of cautious attitude has come in.

For guys who are bold and who have money, this is the best time. In fact, some of these distressed companies can actually be bought over by some good guys and therefore there can be a good opportunity but this is very, very stock specific and you have to do a lot of due diligence on that.
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