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    Despite all sorts of crises, Sensex went up from 8,000 in 2008 to nearly 40,000: Anshul Saigal

    Story outline

    • Quality private sector banks have significant room to grow from here.
    • Prices turning very attractive in certain pockets of broader mkt.
    • If earning power remains strong, stock prices will revert.

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    When markets are doing well, it is always advisable to be cautious and when markets are doing badly, that caution has to come down, says Anshul Saigal, Portfolio Manager, Kotak Mahindra AMC. Excerpts from an interview with ETNOW.

    Day after day, there has been carnage on D-Street. After the underperformance of nearly 4% last week in the mid and smallcaps, that theme continued to get exaggerated into trade today as well. What does one do? What are you advising investors to do at the current juncture?
    The advice is very simple. It is darkest before the dawn and in the markets it is also brightest before dark and hence when markets are doing well, it is always advisable to be cautious and when markets are doing badly, that caution has to come down.

    At a time when markets are doing badly, particularly the broader markets -- the mid and small caps -- one is seeing prices turning very attractive in certain pockets. Broadly, from last year’s levels, prices have become attractive. Given that prices are attractive, a property which was available a year back for a crores of rupees, can be bought today for Rs 50 lakh. You would not bat an eyelid buying it.

    But when it comes to stocks, because there is a ticker and it is volatile and moves in a band and it has a tendency to go down, you can do mark to market and assess your price at a given point in time. That assessment of value pushes you away from buying an asset which is 50% lower from the price in the previous year. But given that prices are so much lower, it makes sense to be considering equities, particularly in the broader markets at this time.

    So you say broader markets should be the focus. How should an investor go ahead and approach the broader market space? Do you think doing a SIP in a broader market or a broader market fund that has a decent history of the earlier cycle would be a good idea to start with?
    Absolutely. I mean for someone who is wary of his value going down in the near term, the best mode of investment would obviously be a SIP and investing that in the broader markets in funds which have a history of performing well, would be in the interest of the investor.

    At times, what is most important is to take advantage of the overbearing psychology of the market which is perceiving risk to be much greater than what it is in reality. Bear in mind that we have in the last 10 to 15 years, had a Lehman crisis, had all sorts of wars, geopolitical issues, and yet the Sensex is up from 8000 in 2008 to nearly 40,000 now.

    Near term volatility aside, I can visualise our markets going up much higher from where we are over the next three to five years. Now if someone has a time horizon of the next six months to a year and obviously is making cautious calls on that, then making calls through the SIP mechanism would make sense.

    How would you essentially look at these lot of M&A deals that are happening? DHFL could wrap up a big deal. Zee is in the midst of a big deal. There are a lot of other corporates that are there. Is that an opportunity for an investor?
    The deals that you mentioned have caused some amount of nervousness in the markets over the last say six to eight months and this nervousness is bound to go away only through one measure and one sort of development which is that risk capital is deployed behind these assets.

    If we do see risk capital being deployed behind these assets, then it will be taken positively by the markets because that will be a signal that the assets have value, people who have done due diligence on the assets seem to be putting their money behind their perception that the assets have value and clearly that will assuage fears in the markets. These may turn out to be opportunities in these particular names but it may also be that they will overall soothe nerves for the markets. So this will be a good development for the markets as also of course for these assets.

    When such the market is going down and midcaps are going down, one could argue that HDFC, Bajaj Finance are probably the hiding places in this market. But when these stocks are falling like HDFC today, does that suggest that markets have no patience and they really just want to see a pickup in numbers or a pickup as far as where they can invest money?
    In the long term, it is really not immediate earnings which drive stock prices. It is the earning power of companies that drives stock prices. In the immediate term of course, it is the mood of the market which drives where the prices go whether up or down. If the mood is ebullient as it was in 2017, prices will go up irrespective of what the earning power of companies is and if the mood is despondent, then we see what we are seeing in recent times.

    That despondency reflects in two ways; it reflects in whole market falling whether large cap, midcap or small cap or it reflects in a narrow fall in the market, narrow in the sense that a narrow segment of the market, it may be a large number of stocks but a narrow segment of the market and a certain set of stocks holding up for various reasons whether it is liquidity, it is growth or whatever.

    Last year we saw the small and midcap space falling quite meaningfully while the hiding places were names like HDFC, HDFC Bank etc which held on and in fact they moved up. Now that sort of a disparity has to change over a period of time. It changes either in the form of the small and midcaps rallying or the large caps those correcting towards the small and midcaps.

    The Holy Grail in all of this is where are earnings going to be say two, three years down the line, not immediate earnings but the direction of earnings. If the direction of earnings is upwards or your perception is that there is no sort of decline in the franchise value of companies, it may be that in the near term because of cycles their earnings are down then that is an opportune time to actually build positions because you are buying when current earnings are low and hence valuations reflect that and in the long term when earnings are up valuations will reflect that and so you want to buy when the cycle is weak which is as it is today.

    Near term -- one or two days -- it may be a reaction to either results of it or may be a reaction to what is happening in the broader markets. But as I mentioned, it is really the earning power, not immediate earnings or not current prices that one should be focussing on. If earning power remains strong, stock prices will revert.

    In private sector banks, for the last 10 years there was uninterrupted rally. In fact, 80-90% of the private banks would have done well and become big compounders. Has that changed now? Does one have to be very, very selective in banks?
    You could be right in the near term but in the long term I do not see that changing. Why I say that is because a bank which is trading at say four times price to book, could well in the near term, fall to three times price to book but then you have got to see the overall opportunity, by which I mean if the overall PSU banking space is still the dominant space in the banking sector today.

    In fact, they are about 70% of the total banking sector market share and that space is going to be ceded to the private sector banks then private sector banks which are 30% of that space, in fact even lower than that, because the NBFC space is also within that 30%, will move towards 50% over the next five to ten years. So there is space for the private sector banks to grow. Long ,term you really should not be betting against that, you should be betting for that.

    Subject to which segment within the private sector banking space you should be betting on, is a matter of detail and in our judgement quality private sector banks have significant room to grow from here.
    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

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    3 Comments on this Story

    Hemant Pisat378 days ago
    Hollow analysis made customers loose millions in the carnage, only few customers (VVHNI''s )could save themselves with secret services by fund managers.
    Samapath Kumar378 days ago
    Japanese index Nikkei reached its peak of 40,000 in 1989. Now 30 years later it is at 21,000. By the stupid logic of Anshul Saigal you would have bought Japanese stocks at discount and kept it 30 years to get even. I don''t know where this kind of fools are mushrooming from.
    Shaji 378 days ago
    Kotak AMC fund managers are very callous and speak very loosely but others are hardly any better.
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