Let us begin by discussing the market itself. What do you think could be the next trigger for the markets because we hit 22,500. From there, we have cooled off, clearly lacking the triggers. What do you think could materially move the needle?
Anand Tandon: Frankly, the market has run way ahead of the earnings and the valuations are no more supportive. Now, unless and until there is something which dramatically alters that scenario, the market does not necessarily have legs to move up very far from here. That does not mean it cannot go back to its previous peak or even a little higher than that, but that is only a 2% or 3% move.
For a sustained move, we might finally need to have the earnings catching up. Right now, the market has gone up in anticipation that the earnings will be good. This quarter, if you look at the numbers that have come through, there have actually been more downgrades than updates. So, primarily, the analysts have turned far too bullish and now they are having to tone down so that itself will put a little bit of a cap in terms of how much the market can go.
What is holding out is clearly IT. Look at TCS, LTIMindTree, Infosys and for the last couple of days when the market has been a bit soft, IT has been doing okay. Is it time now to relook the portfolio and start allocating afresh to IT?
Anand Tandon: I would read the market more as saying that the momentum has been broken at least for the near term and therefore moved back into more defensive areas and therefore perhaps a bit of give up on PSUs, defence, railways and so on which have led the recent rally and instead of move back to things like private sector banks, FMCG, IT, and pharma.
Some of these are sectors that have shown a little bit of strength. So, I do not read it as something where you are saying that there is something exciting going on in those sectors. It is just that if you have to be in the market, you have to rotate out of those which have moved up too much, so what do you buy? You buy those which have not performed so much.
What exactly is your take on whether or not you are looking at increasing allocations anywhere within the largecaps and anything that is a preferred bet here?
Anand Tandon: Right now for someone fully invested, you should be reducing equity allocation and that is the first point. But within that, obviously, the small and midcaps had done too much and had even become more expensive than largecaps.Among the largecaps, the defensive are the one that you can be hiding under. But if you really want to make money, you have to figure out something which is going to actually change for the upside. Now, the only trigger I can see is a global trigger, which is that the dollar has started to give up and it is very likely that around May or June you will find that the interest rates in the US also take a first cut. No matter how much they talk about an independent Fed, the fact of the matter is every time you go into the election, the Fed becomes supportive of the market and interest rates are cut. Now, in that kind of scenario, you have to assume that all the non-dollar trades, I mean, counter to dollar trade, which are things like precious metals, crypto, oil and gas are the ones that benefit because they are all traded in the form of dollars. So, I would argue that if you are looking for a significant upside from here or at least a trading buy, those are the sectors that you might want to look at.
Infrastructure is booming. What is the best way to play it? Is it the road developers, is it the cement play, what is the best way to play this entire infrastructure theme?
Anand Tandon: That is too wide a subject to be able to answer in a short time. As you mentioned, you could play cement, but a huge capacity has come up in cement. As a consequence, capacity utilisation has fallen and prices are again having to come back. If you are looking at the infrastructure players there they are already priced as if they will continue to get this kind of order book and just an increase in order book is not going to translate into higher top line anytime soon because they are pretty much at capacity.
The banks are also stretched in terms of the loans that they are giving. The credit to deposit ratio has now exceeded 80, so now it is going to be difficult for them to also push up the amount of money that they can lend. So, there is no single way of playing it, maybe the machinery sector is something that can continue to do well. But overall, from a perspective of the market, all the sectors that are directly related to infrastructure are already very heavily priced and discounting much on the upside. One should not be looking at double or triple discounting in terms of price. The market pretty much is discounting two or three times.
But if I had to ask you one stock idea, one big theme that you are watching out for, not as a BTST (buy today, sell tomorrow) trade, but a medium-term trade, what comes to mind?
Anand Tandon: I think you are looking at the near-term targets. You should be looking at the international market and that is where triggers will come as well as probably the investment ideas.