What about metals, look at the phenomenal year of metals. They are now making headlines again as China has surpassed expectations with GDP numbers. How will you contact Metal Pack?
Metals are attractive and they interest me. Again, we’re a little late to the party but earnings stability is key and in metals, what we’re seeing is turning into numbers. These are companies that are coming out with great numbers and the whole debt issue and all other issues that are linked to bad cycles are out of the way and that’s something that’s really in our interest.
Now for us, the call depends on these numbers and how durable they are. Commodities are volatile and have super cycles. Now super cycles are not there for 1-2 quarters or a year. They are many years out and if these stocks are able to benefit from supercycles, there is still a long runway. We are looking at some stocks but the important thing for me is how durable they are. If we feel and become convinced that there is stability and it is a supercycle, there is no reason why we shouldn’t be in it.
Will you start adding shorts to your portfolio? Will you short certain stocks where you think the price or valuation or maybe a combination of both will work in your favor if you sell now and buy later?
In the PMS universe, this is a very gray area. Shorting is certainly not current, even hedging appears to be regulated or practices or intermediaries do not encourage us to do so. So from my fund perspective obviously we can’t do that. We do not have the right to do so. But as an individual investor or just a thought process, I would like to answer that question. The fact that this will be a year in which this is going to be a broad range. So, when we get too bullish on something, we get frustrated and when we get too bearish on something, it’s going to backfire. So anyone trading shorts in the coming year, I think it will be quick. These will be more what we call swing trades rather than trend trades.
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Anyone who is a trader will understand the difference in terminology between trend following and swing trading. The year will be of swing trader. If this answer is for traders and I think they found the answer. The difference is that last year, trend, rather trend following, worked great because we took a secular step. In the coming year, I think the upside swings could actually turn down and things get pushed down a lot and we could have the potential to go up.
So, this is going to be a year of swing trading rather than trend following. For a trader, this is a very accurate answer, but for me as a PMS I can’t.
Which two lines would you like to draw for Nifty for this year?
I would see around 19000 as an upside and a downside could be 16,500. Again this is a very broad band but the way the markets are, with the kind of liquidity and volatility, the band has to be wider. I personally feel that these are not written in stone but in sand. There will always be little overlap or things will be pushed towards the end. But we will play in a wider range. There will be a big churn in the sectors in this realm. A lot of sectors will be moving up and down in pecking order and this is where money will be made in the coming year.
This is the current phase of decline in tech, would you like to buy stocks like Infosys every fall?
I don’t know every drop but as I said, there are some stocks in the midcap space that we are looking at very closely. They are coming out with excellent numbers and it really gives us the firmness or conviction that if they do right, they can be good buys and the improvements they can make are thematic or fashion or some kind of macro. The reasons could be more as it is all linked to interest rates. As interest rates rise, the market moves in value rather than growth.
We saw exactly one year ago. In January, February and March of 2021, we saw a similar movement of US bond yields with an increase and a rotation trade, but in April-May the whole trade really changed and bond yields came back again, Entire tech sector went to make new heights. I think it could be a two-part year and we look beyond three months or a quarter cycle as we try to predict bond yields and inflation. It is very difficult to predict them.
We’ve been saying don’t fight the Fed and the Fed was saying inflation is fleeting and now the action is completely different. We find that while most people are very good storytellers, very few have the power to predict as far as these global macros go. While we’re not experts in that, the best thing to do is look at companies that have great earnings and have excellent price trends and when we add to that, we think we’re going through ups and downs. Will be able
This is going to be a year where not all months are going to do well. We will have a couple of months of underperformance and outperformance but net-net, eventually, growth areas or companies that generate good returns will stand out because that is the core of investing. Ultimately we want to invest in companies where there is quick earnings and that translates into quick share price, no one can separate the two for too long.
I would love to talk to you about the business reopening. Revenge will dine out again, revenge travel and fashion stocks will also start performing better. How do you approach that topic? Doesn’t that subject have legs to rally?
These things are very true indeed. There is a desire to take revenge. People are now going out and buying cars and can see all these premium cars, premium vacation waiting lists. Maldives is more popular than Goa. Therefore, the trade of revenge is going on in many areas. But the question I have to ask myself as an investor is, what is a one time vendetta trade and what is the long term trend?
As an investor if I want to make money in long term trends, I want to look at companies with earnings of three, five, 10 years so I guess I need to see what make sustainable habits or what ecology. The consumer is going to go out and consume them again and again. This is why retaliation trading can be a great business from a stock market perspective, but if one is looking at secular themes, one has to look at businesses where there is a behavior change that is going to keep the consumer coming back. This is something that only earnings will tell us. Consistent earnings are something that we look at because they are going to give us consistent price moves.
Since you are talking about multi-year cycle earnings that justify valuation, there is a topic that is not about months and weeks; It is always multi-year and that is real estate. All the operational updates that have come from a brigade or Shobha or Macrotech are looking good?
This is attractive because it is a sector that has gone through 10 years of consolidation. In these 10 years, the sector hasn’t done much except two or three stocks that go up and down and no major wealth has been created by the investors. Even these companies have struggled at the grassroots level. So definitely some major players will come up and they will have opportunities. But it is something like EV trade. Where is the income after all?
There are lots of hop trades. But we are not traders, we are investors and I repeatedly ask myself one question – show me earnings. When it comes to earnings, we are in it because some may be late, some may not get rock bottom prices, but the meat of money is not only early, but in the middle part of the trend when you are in companies. Let’s start with those that are consistently performing well, delivering outstanding numbers quarter on quarter, and many of these quarters eventually go on for years.
We have studied a lot of these global plays, FAANG stocks. View Apple’s history. Apple is a marquee name, it’s a case study but it has had a very checkered past. The last few years have recently been the best money making. One example is the great investor Warren Buffett. His biggest asset in dollar terms has been Apple and when did he buy it? Did he buy it in the IPO? Did he buy it early? Not necessary. They bought it too late, but the kind of wealth they’ve built shows that once a company starts showing numbers, the kind of wealth creation out there with low volatility is fantastic. And this is the kind of place I would like. Be it to my investors.