Equity Markets Will Make New Highs

Markets in the rest of the year : I’d like to think we are in a bearish phase rather than in a bear phase, because there are stocks that have not corrected, stocks making new highs and there was some froth in valuations which is getting corrected. So, this is another tough period for markets, and will probably end sooner. We should be able to conquer these, and markets will make newer highs rather than start a new bear market. I believe it is a correction in a bull market and that we are not in a bear market.

Impact of the so-called global trade war : Regarding India, we never took globalisation very seriously until the late 90s. But, even then we are still such a huge domestic market and we are more inward-looking. So, protectionism will affect us at the margin and some of our businesses. But, we will be able to weather it better than a lot of other Asian countries.

Are Indian markets underestimating the risks from a global trade war? They could be because it has helped all of us. Markets hope that there are enough rules in place in the WTO and free-trade agreements, which will put in place checks and balance. We hope that the Trumponomics is a passing phenomenon but clearly it is something that will keep you up at night.

Which are the stocks that can grow at a decent pace, offering compounding returns for next 5-10 years?   There is a quadrant of stocks that we like such as companies involved in cyber security because of the huge threat that various entities face, and it’s a business with immediate return on investment. However, there aren’t many stocks in this space to choose from.

We also like airline stocks. Airlines have moved from a ‘one ticket one price’ to an ‘A la carte’ pricing. Air travel is booming in India. This entire sector probably will get re-rated. The sector looks attractive from a 3-5 year perspective

We do like the QSR business as it will benefit from shift from unorganised to organised, increasing number of women working outside the house, desire for place with air-conditioning and Wi-Fi, hygienic environment, value for meal, etc.

The last sector we like is affordable housing, and real estate has been beaten down. While there is not much traction on the ground of people buying real estate, commercial is showing an uptick and I think affordable housing segment is starting to pick up. It’s a good time for a long term investor to buy real estate stocks.

New Sectors: There are asset management (AMC) and insurance companies that will do well. But these are still young and recently listed businesses. We will have to watch them for a while.

Elections in next 12-15 months: Elections always provide a lot of uncertainty in the markets. Broadly, my experience of last 30 years, I’m not being cynical though, governments come and go, but India grows.

Do you see signs of earnings picking up: I think, there will be an uptick in corporate and personal tax collections, GST will also recover though the first signs are not buoyant. So, earnings should be good in FY19 and FY20. At some point, the fall in markets will stop and it will have to take into account better earnings. The fear that earnings will not come is misplaced.

Over the next 5-10 years, any interesting trends to watch out for?  In the next 10 years, we will see a huge shift to driverless cars and that would has a profound impact on many sectors such as auto, infrastructure, auto ancillary, insurance, etc. Auto and steel have been the bedrock of industrialisation that contributes to GDP and all that is going to change. Cars would be made of composite material and plastics rather than steel, there won’t be any need for oil, drivers, as they would be electrically powered running through a smart APP. So, that industry is going to through a plethora of opportunities, both on the short side and the long side. And you want to be sure that you want to be on the right side of history.