Nifty is at 12000 levels again. So the big question is whether the market is away from reality or is pricing-in some kind of steep recovery nex year.
Pramod Gubbi, co-founder of Marcellus Investment Managers is of the view that markets tend to be forward looking and to that extent, they are reacting to the sort of announcements that the government has been making over the last couple of months.
“At some stage, these announcements will start showing up in terms of the ground data, be it macroeconomic data or corporate earnings - failing which the market would show a disappointment. However, at this stage announcements around the financial system has been critical because that is at the core of the growth slowing down. If we can address that and get the banks and financial institutions to start lending, I think we have some hope of a recovery coming through,” said Gubbi in an interview with CNBC-TV18.
Talking about the possibility of hike in slabs of GST rates on December 18, he said “If they are hiked, it will be bit of a disappointment because we need all guns firing as far as triggering or stimulating growth is concerned. Financial system recovering will play its part but there is a sentimental issue, also in terms of jobs and disposable income growth and any sort of hike in goods and services tax (GST) will obviously put that back."
"I hope we don’t see a hike particularly in lower ticket consumption items which clearly have been affected which shouldn’t have been,” he added.
Sharing his rationale for being upbeat on Relaxo Footwears, he said, “It is a portfolio company, it is exposed to the structural dynamic in terms of spending on footwears. It operates in very low ticket size footwear literally catering to the common man on the street. Common man’s spending on footwear is unlikely to get affected by what is happening with the trade war or the crude prices and so to that extent, the demand is fairly secular, volatility of growth is very limited. Moreover, Relaxo has a very dominant position in the entry-level flip-flop space or in the entry level sports shoes space.”
On Eicher Motors, he said, “We do have position in the stock in some of our portfolios. It has remained a very strong franchise. We are particularly impressed with Eicher’s ability to come up with new products." So as an when demand pick ups, recovery in market picks up their product line up should help delivery disproportionate recovery in earnings and margins, he added.
Talking about other spaces in building materials, he said “We have paints and construction chemicals like Pidilite. We are also looking at pipes or electricals. It does have some reliance in terms of dependence on the real estate market for a structural pick up."
On real estate, he said, “We are unlikely to build a position in any real estate company partly because it doesn’t tick the low volatility in terms of growth, it is by definition cyclical and it has significant regulatory changes of late which means that you should wait for the system to sort of settle down and see how real estate as a sector takes off. "We are happy to stay away from it,” he added.