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These are the edited excerpts of the interview.Q: Two weeks before we were speaking, you said when party is on, it is on but when it stops, it becomes difficult to restart it. How much time will it take to restart and how much of pain is left?
A: These are unusual times. Every time it is a new story and that is the beauty of the market. Like 1992 was the first shocker we had. First, there was an upward move of 7x in 19 months. And then vertical collapse from 4,200 to 2,400-2,500 and the market started moving from 700 to 4,200. Unprecedented 19 months. So stories are always different. It was not backed up by earnings. It was just some kind of liquidity flow. 2000 Y2K boom. It was a sectoral move, big time. Again it crashed by 50-60%. 2008 was again the crash.
And every time, the earnings are broken. This time, the market has moved from ₹500 earnings per share (EPS) to ₹1,000 for Nifty and the market extended from ₹8,000 at the bottom to 24,000-25,000. So it went 3x – earnings went double. So obviously market got rerated big time.
Now, we are correcting that rerating because the earnings profile is slowed down, but it is not broken. Current year, the earnings are going to grow at about 5-6% and there is the obvious reason for credit slowdown, economic slowdown, and every aspect of tightening by the regulators. And now there was an election, so there is a delay in the government expenditure and all so all of this has passed.
This is a year of all kinds of difficulties in the economy. And despite that, we are doing 6.5%. Don’t forget that and now we are exiting probably the March quarter with closer to maybe 7.5-8% let’s see what comes.
We have set the mood. One correction is done, the P/E multiple, which was at 23-24 has come down to less than 20 and it is below 10 years average. So nothing stops at the average. It overshoots a little bit. So that is what is on now. If the market corrects further from here, it will be overshooting the downside.
So that is what we are in right now. How long it is – as you said, the all-time high was in September. It is not even six months that market is correcting. So after four years of relentless rally, if we are there for six months out here last year, we met 50% in the broad market, and we have lost 20-25% so I think it is painful. It is painful to me also. But it is very logical. It’s a proper, healthy correction.
If indices in smallcap and midcap had gone up by 70-80%, they have fallen by 25-30% and whose portfolio has done 70-80% they have also fallen by 35-40%. This is a very healthy collection. And now next year, earnings will pick up from ₹1,050, to maybe ₹1,150-1,200 and your IPO markets are now shut, almost like frozen. So one by one right things are happening. Credit flow is improving. Government expenditure is picking up. So all the things are falling in place, and correction has also happened.
Q: Nifty, anything more now is overshooting on the downside.
A: I am just looking at the averages. Forward, nobody knows. We look at the last 10 years. Last 10 years average was about 20-20.5 P/E multiple nowadays, its sub-20. So, yes, can it go another percent? It can. Overshooting can happen.Q: What about midcaps and smallcaps? Gautam Duggad, from your team, was with us the previous Monday, and he was telling us, that midcaps trade at a certain discount to Nifty. Smallcap index discount to Nifty.
A: Index performance for Nifty is about 95-96% up on a five-year basis. On the same five-year basis, midcap is up 177-180% so the gap is too much. If it was at about 100-110 that I understand, so that excess gain either largecap has to catch up to match midcap, or midcap has to keep correcting time-wise, or actual downfall. So the divergence between midcap and smallcap is too high. Let us see how the market does. Maybe midcaps will keep correcting and largecaps will make a move, or largecaps will make a move, but midcaps will stay there, and then it will catch up. So the market does its own stuff.
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The most important thing is that we are closer to the bottom. Now, whether it is 1,000 points away or 500 points away, I have no idea. And let me tell you, nobody has any idea. Now this is a time, when stocks are making bottoms. All the stocks will not make bottoms on the same day. So if you like a certain stock, and that stock is available at your dreamy price, and it has gone below that, don’t hesitate to start moving into the market. That will be my suggestion.
Q: If you know all stocks do not make a bottom at the same time, but some stocks today are perhaps at their bottom. Tell us, where is it that you see value right now?
A: I am not at liberty to talk about the stocks. I do have some stocks in mind, but better we don’t talk about it because I have an AMC, and people are buying, selling and things like that. So, it is very interesting. You see what the AMC managers are doing and what stocks they are picking. So yes, there are stocks which are making bottom. They are holding the rock solid at the bottom.
Q: You have spoken about the quick commerce companies in the past, about the structural opportunities, the hype cycle in companies. So Zomato at ₹220 or a Swiggy at about ₹300 – how do you feel about them?
A: So that is one sector which is holding out very well see what is happening is while prices where it is, it might have fallen 20-30% from the top, they are increasing value at very rapid pace. So it is quite possible, if it stays here for three, four months, see if you are talking about investing, it’s not about picking the absolute bottom prices. It is about buying at fair prices. Are you buying a company which is growing at 50-60% at a fair valuation?
My sense is that is one sector where there is momentum, and momentum will pick up further, and it will become very interesting. There are not some 10-20 players, there are only two, or three players, and others will find it difficult to enter. Of course, others will try. As the pie becomes big.
Q: Fair value for a quick commerce company?
A: I would think it is stabilised. Nobody can say that 5% can move on from here? It can, but we are closer to the bottom.
For the full interview, watch the accompanying video
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