Not keeping big hopes from Budget, says Daljeet Singh Kohli


“I am not holding any of Adani Group stocks and we have not analysed in detail any of them. We tend to avoid any company which has a huge debt on its balance sheet. So with that view, we are very clear that we are not touching even in this fall also,” Daljeet Singh Kohli, CIO, Edited excerpts..

A little bit near term but do you think this is just an expiry day weakness and adjustment that we are seeing or is this nervousness ahead of the Budget next week?
Yes, I think this is nervousness ahead of a big event. It is a combination of three things — a big event round the corner; for the last one and a half months, the market has been in a very narrow range and it has been quite indecisive because we do not know what is going to happen globally. Most people are hoping that the Fed is probably behind now on increasing the rates but what next? Will that be good for the market?

So, as of now, the indecisiveness is creating this very narrow band and markets were probably waiting for some kind of a trigger, which we have got today in terms of a news flow. Then we saw some sell off but most people believe that probably only after the Budget we will see some kind of decisive move. From the Budget itself, we are not keeping very big hopes. Just one of two things which are very important for the Budget to address would be the rural stress.

People will look forward to what the Budget does to address that. Second point to watch would be the long-term capital case — if there’s any tinkering with it.

So I think the market will wait for these two very important aspects in the Budget and then take up a call on which direction to go. By that time, we will have some action from the Fed. Though 25 bps hike is expected, but what is the next trajectory and what is the trajectory about recession rate. The hikes are now a thing of the past but what is going to happen as a repercussion of that — will that mean global growth going down. Everybody is cutting down their estimates, how much those estimates are cut and what is the actual impact. I think the market would want to wait for that.

So we will see there is a lot of indecisiveness and uncertainties right now and that is what is not letting the market take any one direction.

The entire Adani Group of companies — should one use this correction as a buying opportunity, given the fact that the entire group has been quite a bit of a wealth generator for investors?
Yes, it has been a good wealth generator for everybody but I do not think this is the time to get into it as of now. First thing is the disclaimer, I am not holding any of these stocks and we have not analysed in detail any of these stocks.

We have never covered all these stocks so I have no detailed or deep understanding. What I can say is that because of the high leverage, we have always remained out of it and that remains always the case and that is a big red flag for us.

Any company which has a huge debt on its balance sheet we tend to avoid that. So with that view and bias approach we are very clear that we are not touching even in this fall also. Now, how far these reports are true, what is the actual situation that only over a period of time we will come to know but just because we are very clear that we are not touching something which is highly leverage so we will not touch even after this 5%-10% fall.

Just let us start with you know this nervousness, this uncertainty ahead of the Budget where we are seeing selling. You think it is much more than that that we are talking about in terms of the selling that you are seeing in the last few days or it is just you know uncertainty ahead of an event?
I think it is something more than that, the event is playing its own role but all of us know now that the events importance is much lesser now.

So the main culprit which my understanding is the earnings part, the numbers which have come in we had expected that there will be improvement in at least two-three sectors like chemicals, like pharma, midcap cement there should be a good improvement in the margins because their inventories are getting used up and realisations are going up.

Unfortunately the numbers till now have not shown that kind of thing so which means that there is probably one more quarter delay in that maybe next after quarter four we will see some kind of improvement so which further elongates your delay you know basically you need to wait for some more time that numbers will come.

As of now nobody is changing FY24-FY25 numbers but margins are not coming then it means obviously there is a pressure on the overall earnings per share for the market in Nifty earnings as well as sectoral earnings also. So the four-five areas where there was an expectation of improvement in margin that is not playing out.

Second thing is the global recession how this is going to impact now every time we say that global recession India is immune, India is decoupled, we do not have so much of worries of that, we are domestic oriented but we should keep in mind still 20% of our economy is dependent on globe, GDP 20% still goes into exports so that means those push the segments or such segments are still in…

History has shown us that in such scenarios FMCG tends to do well, urban consumption tends to do well this time around. Is it the case this year? Pharma is finding it very difficult, so where should one hide?
Yes, so these are all sectors which have always been favourite and they are all very costly. People are just willing to look at nothing else only the quality since 2008. Actually, this phenomenon has been playing out for long. But just the quality is immaterial.

I think that will also change now. That has started already changing because free money is now getting out in a way.

When you are paying substantial interest on the cost of funds, you will obviously look for what is the price that you are paying. So, you will see this change also happening, so there is nothing wrong with these companies, these companies are doing well. One- or two-quarter blip might be there but the problem is the valuation part.

So there is no margin of safety as such right now. The problem will probably aggravate further from here and people will look for areas where there is a valuation comfort, for which unfortunately of now there is no place in our market. Nothing is available less than 20-25 of one-year forward. Now if your starting point is 20-25 times you are expecting it to deliver more than 25% growth in next two years to make something out of it. If the scenario is such that the future is not looking that right, you will not get that kind of returns. So return expectation has to mellow down, these valuations have to come down then only probably we will see some pick up.

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