Market in a bull run; equity not for faint-hearted
Interview with Ridham Desai, Managing Director of Morgan Stanley India.
Jun 03, 2016 | Source: CNBC-TV18
Bullish on the broader market: It is a personal timeframe. If you take a 3-5 year view we are in the beginning of a mega bull market. If you take a 3-6 months view you could really hurt badly if things go wrong because markets around the world seem to be priced for perfection and are not bothered about anything going wrong. So, that is the risk. If you can deal with that risk then you buy equities. If you can't deal with that risk then stay on the sidelines and wait for that moment to come but as I said earlier when that moment comes you don't feel like buying stocks because when stock prices are attractive you don't feel like buying them.
Where do you think the leaders of bull run will come from: Consumer discretionary, we are very bullish. We are making three big calls. We are saying the Goods and Services Tax (GST) is getting passed. I don't think it has major market implication but it will boost sentiment to some extent. The corporate debt cycle has peaked, that doesn't mean you go and hunt the public sector undertaking (PSU) stocks because they may not have completely reported all the pain. But it is incrementally good macro news and consumer discretionary is going to give you super returns over the next 12-18 months because consumption demand has also turned and I don't think it is fully priced in. The valuations are okay. So, maybe consumer discretionary leads it followed by banks. Banks always will be in play because it is such a big sector. Markets can't make new highs without banks actually rallying. And in the banks you want to buy private sector over public sector.
We are actually saying that retail loans in India which are currently about 13 percent of gross domestic product (GDP), that number may double in the next 7-8 years. Corporate loans used to be 25 percent of GDP at the start of the previous decade. In the subsequent 10 years it doubled to fifty. That led to topline growth of 25-30 percent of the corporate banks and corporate banks outperformed retail banks in the previous cycle. People have forgotten that because in this cycle it is opposite. But now retail loans will do what corporate loans did in the previous decade and that will be great news for retail banks. So, we just started this. People think retail banks are expensive, they are not. They are cheap, they are cheaper than corporate banks. Don't go by headline price to book multiples because they will report growth and they will have cash flows that will essentially make the stocks attractive.
Next three months view: Tough one, I think the markets are going to be volatile. It’s not going to be easy over the next three months. We have seen a run up and it will all depends upon how the global factors play out, but safe to say that it will be more volatile and not necessarily higher up, but if you take a little bit more than three months its look really good.