Why this sudden risk-off in the market? After other asset classes like Bitcoin and metals, now equity is also facing the heat?
It is basically a bit of jitters just before the Budget but it is largely overdone. I think this is a correction or a dip that needs to be bought into. Reliance Industries has fallen 7% over the last two days but it has risen about 165% from its bottom. Their digital initiatives will generate revenue and earnings in the future. The concern over why they are not contributing towards earnings today is a bit overdone. They will contribute to revenue and earnings in the future.
Some of the other companies like JK Tyres, Apollo Tyres had run up very significantly. JK Tyre had probably run 70-80% in one month so this is a bit of a profit taking. I would not read too much into the weakness.
How do you read into L&T’s numbers?
The L&T’s numbers are fairly strong. The order book is really good and with IMF projections of 11.5% GDP growth for India, it bodes well for a company like L&T which gets one in four infra orders. The company is trading at an extremely attractive valuation of 12-13 times FY22-23 and so that is not a concern. Visibility provides a certain amount of revenue certainty which is essential in this market. Clearly with the coming Budget where infra is likely to be a focus, L&T would be a name to accumulate.
Would you be a buyer in Reliance just yet?
Reliance remains a long-term buy. We would start nibbling. Reliance Retail is not yet contributing to the revenue. These were announced but on a discounted cash flow basis, which is the way to look at long gestation projects, the valuation does not really matter much. You can really buy the stock at current levels and there is sufficient upside for the long term holder.
Whether there is going to be an overall correction and therefore the stock also drifts down with it is another matter but clearly there is a very strong long term potential in Reliance Industries.
The one pocket which held out very smartly up until last week or even on Monday was the entire auto theme. Given the decline that is playing out today would you be a buyer just yet?
Auto as well as auto ancillary companies are showing excellent numbers. Look at JK Tyre, the stock was up about 60-70% in a matter of two or three weeks and the company beat those numbers and is still trading at probably about seven times. But when something runs up 70% in a matter of a couple of weeks, there is bound to be some amount of correction.
The auto pack has outperformed year to date the Nifty and so there is some amount of profit taking. It is better to wait for the budget, trying to figure out if there will be any policies like the scrappage or any such announcements. I would not read too much into the weakness. It is a bout of healthy profit taking.
Would I buy into it? Yes, if the overall markets can drift a little bit but overall I would be a buyer of the auto and auto ancillary stocks.