Buy Marico, sell government facing companies: Raamdeo Agrawal
The Budget is scheduled to be tabled on March 16. At present, a deduction of up to Rs 1.5 lakh is available from taxable income towards interest on loan taken for house.
Retail investors who have missed the current rally should invest in quality stocks rather than look for momentum plays. That is the advice of Raamdeo Agrawal, Joint Managing Director at Motilal Oswal Financial Services.
Edited transcript:
Quality of liquidity:
It is difficult to figure if this money is from the long only fund or hedge fund or sovereign fund. The good thing is funds have come and markets have shot up. I have never tried to figure out who is buying. People are saying ETF (Exchange Traded Fund) or passive money is getting allocated, that’s why we are seeing larger movement in the index. Clearly this is passive money, large cap oriented money and at the pace at which it has come, it can also exit at the same pace so that fear is always there.
Markets have surprised:
Clearly, markets had to bounce back and it did bounce back in a surprising manner. Markets have completely surprised everybody. People who focused on investing rather than timing the markets have benefitted. Suddenly in the last 5-6 weeks the mindset has changed even though nothing has changed fundamentally. We have fiscal deficit problems, political instability, problems in Europe- so nothing has changed.
Don't chase momentum:
Reliance Infra, Jaiprakash Associates, IDFC and Sesa Goa are the top Nifty gainers since 1 January 2012. They are up 50-85% in 4-5 weeks. On a 12-month basis, the biggest Nifty gainers -Hero MotoCorp, Kotak Mahindra, Ambuja Cements and HUL- gained 35-40% but these stocks have gained only 10-15% in 2012. That has been the contrast in this rally.
Factors that may affect markets:
Over the next few weeks the following events will hold the key to the markets.
a) The political battle in UP
b) The budget will be announced in the backdrop of one of the most trying times of fiscal tightness amid slowing economy and huge demand for popular spending.
c) Global fears: Investors have taken a liking for EM stocks compared to developed market stocks on the prolonged near zero interest rate possibility in the US.
Fundamentals have not changed:
Interest rates are as high as they have been. Liquidity is extremely tight and it’s not a conducive environment for markets to move. The cost of liquidity is at an all-time high. Corporate earnings have been flat in this quarter and I don't see them improving in the next quarter. I don't see the confidence of sustained earnings boost that we saw from 2003-08. The only thing is liquidity has come and that has boosted markets.
Rally will continue:
Markets are trying to catch back to their fair value. If this rally gets extended, lower quality stocks will be beneficial for the time being but over a 12 month basis quality will prevail. So, investing process should not change irrespective of what happens in these low quality stocks.
Stock picks:
Buy Marico: I am invested in Marico. It is an extremely well-managed company. It will not grow up by 50-60% but even at the current price in can be examined.
Sell government facing companies: There are a lot of very good companies with potential but they have not performed because of the current economic situation. These companies are capital intensive and have a lot to do with government policies. I would like to be light on these companies.
