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Investible universe is shrinking for the discerning investor: Kunj Bansal

At the end of the day, there is one way of looking at the market and that price is God.

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Last Updated: Nov 28, 2019, 11.37 AM IST|Original: Nov 28, 2019, 11.37 AM IST
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We are allocating 30-40% in trend/momentum/higher valuation stocks; 20-25% odd on contra bets and about 25-30% in historically good performing stocks facing growth pressures, says Kunj Bansal, Partner, MD & CIO, Sarthi Group. Excerpts from an interview with ETNOW.

The massive move in ICICI Bank following the increase in MSCI weightage is now finally over, but the stock is up 40% this year. How much further can it go up in the near term?
One way is to look at some other stocks from some other sectors. FMCG is the top of the mind. If we look at the performance of the stocks from those sectors, beginning 2019, there were lots of discussion on how the FMCG sector has had 3-4 years of outperformance and that 2019 will probably not be the year for FMCG. But today, at the end of the year, we see 2019 again was the year of FMCGs along with some others.

About 12-14 months ago, ICICI Bank was at a stage wherein all the negative news had been built into its price and valuations, its financial performance. The stock price by then underperformed for almost two and a half years, based on various developments. It has come out from there, so that is one part.

The other part is, today we are in a market where over the last one-and-a-half-year, corporate governance issues have been coming more and more in focus. As a result, for any investor -- be it global or domestic -- who is cautious about these issues, the investible universe is continuing to shrink.

Your life should be easy if the universe of investing is reducing! All you need to do is bother about 15 stocks. It has never been great for fund managers this year. Where would you go if you want to get out of those 15 stocks?
Let me also now throw in my spanner. Over the last two months, Nifty rose 10% but none of the traditionally performing stocks have contributed to business.

Reliance has added.
Reliance is an exception.

HDFC Bank has added. ICICI Bank has added.
Let me give you some numbers.Some of the stock names that I am taking are with the disclosure and are not investment recommendations. Sun Pharma and Cipla have roughly moved 20% in the last two months. Reliance has been one outperformer. Auto stocks rose 30%. Tata Motors is one of the underdogs. Within banking, we have completely different set of stocks. YES Bank, ICICI and SBI are historical laggards. So, life is not that easy. Last two months have been difficult but over the medium term, it could probably come back to being easy.

What do you do at Rs 500 plus levels on ICICI Bank?
I am still positive. We have not bought recently but we have been holding it in some of our clients portfolios.

You are not taking profits anywhere?
Not right now.

It does not matter whether it is momentum or liquidity, if prices are going higher, NAVs will go higher. How do you invest in this market when growth is bad and the economy is not recovering, flows are strong and markets are at an all-time high? If you take a view on the economy, you cannot be bullish but if you take a view on the flows, you cannot be bearish!
That is a very big dilemma that we face as money managers. I am sure everybody else faces it including retail investors. Sometimes you have to take the trend as an indicator. The market is telling that at the end of the day, there is one way of looking at the market and that price is God. If you take that as a hypothesis and try to analyse the July, August, September data (I have not got October data), the government expenditure has gone up. July was roughly 25% up over last year July; August was 30% up and September 35% -- both capex and opex. That probably is indicating something.

On a five-year basis, MRF and Goodyear have given reasonably positive returns, about 30-40% return. Apollo has given negative returns, as has JK Tyre. Ceat is flat. So that is again a divergence. It is difficult to justify. That makes it difficult to make money in the market.

-Kunj Bansal

If the government has continued a similar expenditure in October and November, it is a matter of time that the secondary effect -- the cyclical effect of that money flow will come into the economy and things will start easing out. So that is one way to look at it.

The second way is smart money is always ahead. The market moves at least six months ahead of what developments we are able to see as analysts or fund managers or when actual numbers come. As an investment strategy, what I am doing or what we are doing is nothing particular; but very broadly speaking, 30-40% are plays in trend/momentum/higher valuations; 20-25% odd are contra bets, say into auto and auto ancillaries. About 25-30% we are trying to play in historically good performing stocks which have faced growth pressures in the last five-six quarters because of the environment but as a result valuations are relatively cheaper. On an absolute basis you have to take a medium to long-term call.

TVS and Hero MotoCorp and Eicher in last two years would have given terrible returns. It is 36% lower for TVS Motor and 24% lower for Eicher.
Let me throw in some additional numbers. Coincidentally, it was not in auto but related to it -- auto ancillaries, more specifically tyres. A similar divergence has been there if we look at five-year numbers. On a five-year basis, MRF and Goodyear have given reasonably positive returns, about 30-40% return. Apollo has given negative returns, as has JK Tyre. Ceat is flat. So that is again a divergence to add to your OEM manufacturers numbers. It is difficult to justify. That makes investing very difficult and makes it difficult to make money in the market.

Having said that, obviously some of the factors which have worked and what works for Bajaj Auto is export. Also the fact that management was very clear that at the expense of margin, at the expense of doing some discounting sales, they would focus on top line, on volumes. I do not know about the exact market share they have gained but very clearly, it worked in their favour.

Should one subscribe to the SBI Card IPO?
I have not looked at the numbers in detail. Let us look at the two other IPOs. CSB Bank IPO closed recently and it was 87 times subscribed.

For a Rs 400-crore, they got Rs 4,000 crore.Where is the risk averse mindset and where is the lack of liquidity?
We are going to have the Ujjivan Small Finance IPO. I am not sure if that will attract a similar kind of subscription, interest or over subscription. The reason being that today anybody -- whether a consumer who is buying goods or services in the market or an investor -- is telling me give me a good deal and my money is here. Quality should be there and value should be there. Price offering, valuations should be there. Now, that was not exactly the case with CSB Bank whose financials are not as great, but the brand name of the promoters, partly the valuation got it that kind of subscription.

Coming to the SBI Card IPO, I still have to look at the numbers in detail but if the financial numbers are reasonably good and valuation offered is cheaper, the market is desperate for opportunities to invest. So, we should see that kind of investment.

What do you do with YES Bank? They are all set for a mega fund raising of about $1.2 billion.
Something should come out now. It is high time. Because we have had the names of the sundry Tom, Dick and Harry but nothing has come till now, which is unfortunate. It should not become a story of crying wolf too many times because then the market will really be disappointed. Market has given YES Bank a benefit of doubt and has brought the share up from Rs 25-30 to almost Rs 70 today. Without any concrete development, the stock will be brought down equally fast. So let us see.

But if we have some concrete names, some actual action on money coming in, around the current levels, YES Bank will have its floor price. From here to go up, we will continue to need developments and announcements in terms of the next one, two, three, four quarters’ financial numbers, some improvement in business, some reduction in divergence with RBI’s audit, NPA control and all those things. But the basic requirement is that capital should come in.

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