Markets are doing much better than what everybody thought at the beginning of the year.
Well, yes. The answer is yes. But if you look at the vast majority of people who have got invested in largecap funds and who got invested in the banking fund, for them it has not been a good year at this point of time. There are big pockets of market which have done reasonably well or quite well or exceedingly well in that order in the midcaps and smallcaps but if you look at the vast universe of money invested in the largecaps, that has been a very disappointing year for them and we keep saying it is going to repeat itself next year and that is the sad irony that a large portion of funds of retail public are not making even a decent return.
The general market has done very well for most investors; most PMS portfolios and individuals may have done extremely well but the general public which invested in largecaps had been left disappointed and we have seen what has happened to the banking index in any case. One needs to bifurcate the market saying exceedingly well, very good, and very, very disappointing. Largecaps have been part of a very disappointing bucket.
So, where are you picking your spots? Are you going back to largecap and say that disappointment means value and excitement means no value? So smallcap is exciting but no value while largecap is disappointing but there is value?
I do not know how to say this, but it is very difficult to find value and today India is not a value market. Everything is expensive at the end of the day. We are really buying momentum and PE expansion at this point of time. You may consider the PSU bucket to be the value stock because those are the only ones in single-digit PEs and decent cash flow, etc. But really speaking, across the board, there is no value in this market.
This market is about momentum investing. This market is about new stories coming out. This market is about government spending themes. So, you would waste your time if you buy value in this market. Value can go on forever to not be recognised and really speaking at PEs of 25 and 30s, except for banks, it is really difficult to find value. So, forget value.
I will say this year, next year is going to be back to momentum investing and wait for corrections when you buy. What you buy at will dictate what you make, not what you keep adding up. So, the value concept is out from Indian market, we are an expensive, expensive market.
When you are referring to that PSU pack which is cheaper, which ones are they? Is it just the bank part you are referring to because it cannot be railways or defence or even power utilities which have run up quite a lot?
Even after they run up, let us take the metal stock, or the power utility stock or the transmission stock. In comparison to their NAVs, in comparison to their book values and the rest of the market, they are still significantly cheaper. Yes, they have run up, but the fact remains compared to the rest of the market, this bucket is still quite cheap. Yes, it has not done really well in the last decade or so, but things do change. The dividend flows have become much higher from these companies and so to an extent, it is much better for investors. There is a saying in Hindi: Mara hathi bhi sawa lakh ka hota hai (Even a dead elephant is worth a lakh). So, how bad can they get? If they get bad, you buy more. So, as a bucket, whether it is transmission stock, power stocks, metal stocks, the material stock, commodity stocks and, of course, the PSU banks, you name it across the board, the valuation is significantly cheaper than the rest of the market and now that would give you a better return.
Higher risk, certainly so. The only one we do not want to invest in is going to be refining companies because they are not really companies, they are government departments. You do not know what you are going to make out of them. So, apart from the bucket of the refining companies, the rest of PSUs is still a pretty cheap compared to the rest of the market.
What do you make of the entire new-age tech basket given that a lot of these companies are focussing on profitability and have really pulled up their socks. Is this a sector that merits a relook? There are so many IPOs that are hitting the market. Tata Tech will be closely eyed this week. Your take?
Oh, that is the beauty of this market. That is where the Indian investors need to go and we have told our team that we should have more than 50% to 60% investment money in companies which are less than three to four years on the bourses. That is the more important one. There are so many new themes coming out in the market. These have got the new age ability to harness a large number of customers at a very short cost base. They do not need to physically expand.
So, it is a given that if you do not have these new-age companies in your portfolio, I think you are missing out on the big ride in the market. You are going to allocate to the cement stock or HDFC Bank, but to do it at your own risk? That is not the way you are going to invest in the next year.
New-age has also come with monopolies. Whether it is payment systems, food delivery companies, advertising companies, lounge companies, tech companies or defence companies, all of them are in semi-monopoly or monopoly status and this cannot be built over time. The cash burn is by and large over at this point of time. Most are at least EBITDA positive. Yes, they have run up quite a bit, to be fair most have doubled in the last six months or so, so you have got to pare your investment. But if you do not have more than 50% of your investment in new-age companies, I think you will do injustice to your portfolio.
The old companies need to be given out of your portfolio. It is like your old wardrobe, you need to take out your old clothes out of your wardrobe, do not take out your old men out of their homes, but at least the wardrobe out of the homes and substitute with the new latest ones, that is what the portfolio is all about. Button is refreshed at this point of time, not to go back to pedigree stocks.
Yes, antique painting, antique cars, vintage wine, everything old does well.
See, you are a rich guy that is why you talk about antique wines and antique 40-year-old, 50-year-old scotch. I am talking of ordinary people like us who like to just focus on wardrobe, if we can afford more than that we are lucky.
It is just that I do not have money. That is why I do not change. And because I do not have money, I do not change when a thing becomes old. It is the other way around.
You are right in the manner of speaking. But look at some of our older companies, look at what HDFC Bank has done. The biggest destroyer of wealth for the merger in the company, for the best known company, just see what a protection of RBI competition can do to an industry. Banking is one such. The moment the umbrella of no new licenses went away, you will see the true performance has come out. And it is a disaster.
The banks are a disaster in India, absolutely. The quality of service is pathetic, absolutely. And you know, it is sad to see what is happening in the Indian banking industry, when on one side automation is building up, but the customer service is collapsing at the end of the day. You know, you must have read about the attrition levels.
So, you know, these are big behemoths. They ran their run because of the protection of RBI. You do not get RBI protection. These banks have come out to be true what they are. They are poorly performing companies at the end of the day, with poor managers who got themselves rich by ESOPs at the end of the day. That is what these companies are. So I would say go for the new guys. You got greater hope, greater excitement, and greater thrill of working on new sectors. As you rightly said, look at the number of IPOs in this country, fantastic, absolutely. Look at the choices we got, superb. So why would you go back to the old order? Do not, I recommend.