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00:00Welcome back, you are watching Talking Point and over the next half an hour we will try
00:13and build some perspective on the broader markets, the excitement that some people argue
00:17exists while others believe this market looks rather expensive.
00:21Earnings season is behind us, the key triggers that will drive us for the near term will
00:25remain global.
00:26Anirudh Sarkar, CIO and Portfolio Manager at Quest Investment Advisors now joins in.
00:31Anirudh, good morning, thank you very much for joining in.
00:33We live in very interesting times, at the start of this month there were concerns about
00:39a global recession, Japanese carry trade unwind, all of that was done within 24 hours.
00:47Then of course we constantly argue about how valuations in Indian markets look expensive,
00:52PMS's funds are sitting on significant levels of cash is what I have been told, but the
00:57markets have a mind of their own, there seems to be no breaks and no pauses.
01:01What are your thoughts?
01:02Yeah, hi, good morning, so basically I think one thing it works in the market always, when
01:10everyone expects something it's not going to happen and practically as you rightly mentioned
01:14in the last, if I see in the last 4-5 months almost everybody has been waiting for a big
01:21correction in the market.
01:22There have been times wherein there were events in the market both on the domestic side, on
01:27the international side and there were expectations that markets will fall, but again as you rightly
01:31mentioned, the corrections have been extremely, extremely short-lived.
01:36One thing I would want to mention in this is that, and this is something I've been telling
01:39investors also, that don't wait for a big correction in the market because if I look
01:44from a 4-5 year horizon I think all the building blocks are in the right place when it comes
01:49to the whole India opportunity and that is where I would say any money which is waiting
01:54on the edge or on the, I would say the sidelines, both domestic money and I would say on the
01:59retail side and on the mutual fund side, that is entering the market on every dips.
02:05Valuations, they look expensive from a headline number, but if I look at individual companies
02:10definitely there's a lot of opportunity.
02:13It has definitely become very difficult to make, I would say, easy money in the market.
02:16The breadth of the market has gone down, but having said that, I think that is where the
02:20job of a portfolio manager has become all the more important because you can't buy anything
02:25and make money in the market in this type of market.
02:27You need to be very selective where the earnings are coming from and which sectors to avoid
02:31and which sectors to be in and also at what price you are wanting to buy those opportunities.
02:38Let's start with that then, Aniruddha.
02:40Are you fully invested in this market because as a PMS fund manager you do have the option
02:45of sitting on cash and you also have the ability to sit on significant cash if you
02:49have to before you allocate to the markets.
02:52What is the portfolio stand, how much cash in the portfolio are fully invested?
02:57I normally, you know, on an average 4-5% is the average cash typically I keep at all times
03:02and I continue to maintain that.
03:04I'm not very high on cash at these levels, so I'm maintaining my average 4-5% cash which
03:09I normally do at all times.
03:11Having said that, whenever I'm seeing a sharp run-up in the portfolio companies where valuations
03:16are kind of, you know, gone beyond my wildest expectations, there I'm definitely bringing
03:20down the exposure.
03:22I'm not getting out completely because many of these companies where the valuations have
03:26become rich, interestingly that is where the highest earnings growth is also coming from.
03:31So it's a kind of, you can say, you can say the confusion that multiple wise looks expensive
03:37but then when you look at the earnings that is where the numbers are coming from.
03:40So some amount of the weight trimming I'm doing but not sitting on a high cash.
03:46So where is your biases Anirudh currently at because a lot of the stuff that you own
03:51and I want to talk about specifics like a Trent and a Zomato which keep rewarding investors
03:55and this morning of course we have news on Zomato as well.
03:59But talk about the outperformers and the underperformers because I believe you're still holding on
04:05to a few stocks that haven't delivered on the market performance.
04:11If I just begin the discussion from the broad sectoral exposure and that is where I would
04:16say the big alpha creation has happened.
04:18If I see in the last one year, the big alpha creation has happened from being overweight
04:23on the whole the urban consumption story and both the names which you took, you know, Tata,
04:28Trent, Zomato, they have been a part of your urban consumption story and that is I would
04:32say where the big numbers have come from.
04:34I have been bullish on urban consumption and within urban consumption if I break it down
04:38into the sectors within that, one is the consumer discretionary which includes the names which
04:44I mentioned.
04:45Then the other part is hotels which has again done exceptionally well.
04:48We continue to see a lot of demand on the hotel side.
04:51The last one quarter was weak because of elections and all but then hotels continue to do exceptionally
04:56well.
04:57The third sector where it has again given us good returns is the auto and space.
05:01So auto ancillary continues auto and auto ancillary that again is a good space where
05:05I would say a lot of alpha creation has happened.
05:08And the fourth part is the real estate and ancillaries.
05:12So these four sectors are broadly within your urban consumption and that is where the big
05:15alpha has come from.
05:18The second major broad allocation where I would say has done really well for our portfolios
05:23and for our investors is into the whole industrials and the CapEx.
05:27Now when I say industrials and CapEx, it includes your sectors like capital goods, engineering
05:32companies, power.
05:33I've been very bullish on power space and I think that's one big sector investors even
05:39at this point should be betting on because there's a lot of power transformation which
05:43is happening in the country.
05:44We have not seen this type of a power CapEx in the country for a long time.
05:48So within industrials, you have capital goods, engineering companies, power, and when I say
05:52power, it's the whole value chain of power, not just the power producers, but you know
05:56your entire supply chain, transmission, distribution, wires, cables, transformers, and all of them
06:03power EPC players.
06:05And also we have some exposure into the cement companies because if you're bullish on infra
06:10and the real estate, it's indirect beneficiary of that.
06:15You know, Anirudh, you said that you've taken profits off the table and stocks have run
06:18exceptionally well.
06:19Now the first stock from your list that comes to my mind is Trent.
06:24You know, it's expensive, the valuations look stretched, but the performance has been
06:29phenomenal.
06:30Will you continue to hold on to Trent or are you taking some money off the table on Trent?
06:36I'm with you on that because I think Trent has beaten all our wildest expectations.
06:41Like, you know, in fact, when we got into the company at roughly around 1400 odd levels,
06:47that was our first initial entry.
06:49We had never thought we'll look at this type of a return in such a short span of time.
06:54But I think weight management is very, very important.
06:57And when I'm saying I'm booking some profits, it's basically the weight management because
07:01anything which goes beyond 8, 9, 10% in the portfolio, typically I try to bring it down.
07:06And with the type of return a company like Tata Trent has given, I think if I had not
07:10booked anything, definitely the weight in the portfolio would have gone to the mid-teens.
07:15Weight management is something I do because valuation check is also something which we
07:19need to keep an eye on for the whole portfolio.
07:21And barring that, it still continues to be among my top three.
07:25And with the type of growth which it has shown in the business, which is the Zodio, it's
07:29simply kind of, you know, unbeatable by any standards.
07:33The next growth which we are expecting and also the management for the last couple of
07:37weeks I've been talking about is the Star Bazaar.
07:40And that is again going to be our next big growth driver for the company.
07:43So I think it will continue to beat the wildest expectations for the investors.
07:50You know, another sector that your portfolio seems to have an exposure to is private banks.
07:55Nearly 11% of your portfolio is, 10.5% is to private banks.
08:00Then the top holding is ICICI Bank and HDFC Bank.
08:03Do you feel like these are stocks that are attractive even at these levels from the next
08:08six to 12 months perspective?
08:10Or you think there will be better opportunities to buy them?
08:13The private banks in general have been very underweight.
08:16Like if I look for the last four years broadly, I've been very underweight on the private
08:20banks.
08:21And within that, ICICI has been my top holding and that has definitely given us exceptional
08:26returns.
08:27HDFC is something which I bought in the last one year.
08:30I have not held HDFC for a long time.
08:32It's only in the last one year when I entered into HDFC and that was primarily because of
08:38the valuation.
08:39I don't think, you know, the valuations are where these private banks are trading today.
08:42I think downside looks limited.
08:44Obviously, you will not see a multiple expansion from year on because I see some pain in the
08:48banking sector with regard to the NIMS contraction.
08:51So you will see the NIMS contracting and business growth not meeting the past expectations,
08:57keeping the price to book at where it is today.
09:00So you see more of an earnings led price appreciation and not a multiple expansion in the private
09:05banks.
09:06I think we have to look at the private banks more bullishly, maybe just one or two quarters
09:11down the line where I think you will see the NIMS pressure also declining.
09:16Constructive.
09:17Yes.
09:18Just to add on that, I'm more bullish on the non-banks.
09:23And when I say non-banks, it's the other, the non-bank financials like your asset management
09:28companies, wealth management, insurance, housing finance.
09:32That is where my other allocations are.
09:34What about a Nuwama, an Angel One, a BSC, a CAMS?
09:38Because that is where all the household savings, I believe, are headed to.
09:41Do you not see value in those counters?
09:44Yeah, we have a couple of these names which you mentioned in our evaluation list.
09:49But as of now, we don't have any of these names.
09:52Yes, on the AMC side, I have the Nippon AMC, which is there in my portfolio.
09:56And that has again done exceptionally well, being the best.
09:59I would say that they have been growing the fastest and also their portfolios have been
10:03doing well.
10:04With regard to the AMC business, it's all about if your funds do well, that attracts
10:08more and more money.
10:09So, I think Nippon AMC has done well, beaten its peers, and that is a good allocation in
10:14our portfolio.
10:15On the wealth management, we have one wealth company, we have one insurance company, and
10:20we had housing finance also, but we put profit because they had moved up exceptionally fast
10:25and valuations have again become rich over there.
10:28Right.
10:29Stay with us.
10:30Nirav, we'll come back to you in a minute.
10:31I think the big story this morning is Zomato and PTM, and you have both those counters
10:35on your portfolio, but I'll come to you in a minute once we just highlight the news.
10:38I remember Zomato has been the talk of the town from the get-go this morning.
10:42The company has bopped the ticketing business of PTM and made that announcement.
10:47The big question we're trying to understand is has Zomato overpaid for this?
10:52Sajid is standing by with more on that.
10:55Sajid, what is the thinking behind this?
10:58Because since this news came into the market on 17th June, Zomato has seen a one-way journey
11:04from 170 to all the way to 270 to 75.
11:08Finally the deal has been sealed.
11:10Brokerages are constructive on the counter, but I believe you think that they might have
11:14paid a bit too much to pick up PTM's ticketing business.
11:19Well, you know, yes, the news was out in the market or, you know, the talks were out in
11:24the market.
11:25But also the fact that there has been a shift in the Zomato business lines as we speak.
11:32Because Blinkit was showing EBITDA positive, Zomato food delivery was making profit and
11:39that was one of the reasons why the stock has been running up.
11:42But this acquisition of 2050 odd crores seems to be on a higher side given the fact that
11:48what Zomato is going to get, it's going to get a revenue of nearly 229 crores EBITDA
11:54which is around 28-29 crores which gives a 10% EBITDA margin there.
11:58But the bigger question is that at the end of the day Zomato is planning to scale up
12:03its entire ticketing and going out business and it's buying the customers in this deal.
12:11The total transacting customers in PTM today is around 10 million customers as per the
12:17disclosures made by both the companies and which basically means that you are paying
12:21around 2000 rupees a customer to acquire each of the customers and you don't know
12:26whether at the end of 12 months when the transition happens from the PTM app to your app or the
12:32district app which will house the going out segment, how many of them will be unique and
12:38how many of them will actually get transitioned to district app.
12:43That's one of the biggest challenges which will be there for that and for that you are
12:47paying 7 times the revenue in terms of valuation and roughly 70 times EBITDA which you are
12:59paying.
13:00Now you can easily argue that from a gross order value perspective it's nearly one time
13:06that cash you are paying out to PTM.
13:11By the way for PTM it's a very good thing because they are getting 4x or 5x nearly 5x
13:16returns on the investment that they made in the ticketing business.
13:19But for Zomato shareholders you are paying 2000 odd crores for a business which you could
13:24have invested organically.
13:26You have already invested in it and you could have scaled it up.
13:32The very fact that this business is tough to scale up is that the biggest player in
13:36this market which is BookMyShow has a revenue of nearly 800 odd crores.
13:41It has a EBITDA margin of 13% and for the last 15 years BookMyShow has been in this
13:47market though it's a profitable company it is in one way not been able to scale up to
13:55that kind of revenues as Zomato is projecting itself to be because they are saying that
14:01by FY26 or 27 from 2000 gross order value they will go to 10,000 crores of gross order
14:07value which looks fast stretched at this point in time and because of that it seems
14:14that this entire transaction is little overvalued and negative for Zomato because you are using
14:23your hard cash on an investment which you could have organically grown but you are using
14:31the inorganic way and paying much more.
14:34Well, the stocks are I guess responding to that Zomato is trading muted while Paytm trades
14:40high.
14:41Thank you, Sajith for that.
14:42Anirudh, why don't you share your views on it?
14:44You own Zomato and it's been a key contributor in your portfolio.
14:47Do you think they've paid too much to pick up the ticketing and entertainment business
14:51of Paytm or do you feel like this is a strategic move that will eventually play its course?
14:57See, I would say that if I look at the management's history I think they have an exceptional track
15:03record with regard to execution and this whole business of whether you talk about ordering
15:09food or the quick commerce or the ticketing business, it's very difficult to execute and
15:12execution is a big differentiator there.
15:15For Zomato, I think definitely not getting into the valuation at what they bought Paytm
15:19and whether it's the right valuation, I would say that we need to give them some time to
15:23see how this exactly sinks on their platform.
15:27One thing which I would say is that Zomato is one app which most of us open almost every
15:33day whether you're ordering on Blinkit or you're ordering food.
15:36That is one app we open every day and if they are able to integrate this whole ticketing
15:43business, the whole concept of booking tickets, booking shows and all that, the moment you're
15:49opening your app for ordering food or ordering Blinkit, if something shows in front of you,
15:54there's a very high chance that instead of going to a book my show to book those tickets,
15:59you might actually use Zomato's inbuilt app for booking those events and those shows.
16:05So we have to give them some time to figure out how they're actually able to integrate
16:08and whether it actually adds a good kind of a business model in the long run.
16:13And another stock that had caught everyone's attention on the street in the last couple
16:18of weeks has been Ola Electric.
16:21It looked expensive before it went into IPO and the stock has doubled in less than 10
16:27trading days.
16:28What is your view on Ola Electric?
16:30Do you have this counter in your portfolio and maybe you don't?
16:34And if you don't, would you look to buy it at the right price?
16:38Yeah, obviously, I don't have it in my portfolio.
16:42But obviously, when I look at the price, definitely, you know, being on the outside of it, it seems
16:48you know, we missed the bus.
16:49But I think, you know, it's very difficult to justify valuations at times.
16:53And you know, if you're not able to justify valuations to yourself, then you know, I think
16:56some ideas you have to miss out.
16:59Because I think the margin of safety is very important.
17:01And just because a particular concept is doing well, and the stock is moving up, you know,
17:06that would not be a good reason for me to enter into the business.
17:09Obviously, it's being run exceptionally well, and they are kind of doing very well on the
17:14whole EV on the two wheelers, but difficult to justify, you know, the valuations at this
17:20point of time.
17:21Any of the new listings, IPOs that you're keeping an eye out on, Anirudh?
17:27Because there's this whole debate, right, you and me both discussed about valuation.
17:32There might be a little more value in the new entrants or the new debuts on the exchanges
17:36before they hit the market.
17:39Anything that you've spotted that you like?
17:41I mean, Saraswati Saree Depot was on those.
17:43You had Orientech, InterArc, anything that you're eyeing or you've gone and subscribed to?
17:51So normally on the PMS, we don't, you know, apply in the IPOs because PMS, you can't apply
17:55into IPOs, but we also manage the AI funds.
17:58And from that, in the past, we have done a couple of them.
18:01We have participated in some of the IPOs.
18:02But yes, as of now, in the last, I would say six to nine months, we have not participated
18:07in any of the new listing which has happened.
18:10There are some good companies which are in the pipeline for IPO.
18:13Some of them are in the housing finance.
18:15A couple of them are into other engineering and capital good companies.
18:19So we are keeping an eye on them.
18:21And I think valuation-wise, they look much, much better.
18:24So for me, valuation is a very, very big factor before I get into any of the new companies
18:29also which are coming.
18:30So I would say that we are more confident on some of the good companies which are in
18:34the pipeline for the IPOs in the days to come ahead.
18:38Once those be an era, then I do understand from the AI portfolio.
18:41But what is it that you're constructive on?
18:43Anything that you're closely watching?
18:46On the IPO side?
18:47Yes.
18:48Yes.
18:49So I think one big name which will be very interesting is Bajaj Housing Finance.
18:53Because excellent management and definitely housing finance is one area where I'm very
18:58confident.
18:59I'm very bullish on.
19:00And this whole affordable housing along with, I would say, the penetration, I would say
19:04the market reach which Bajaj Housing Finance would have, it has on the ground is something
19:09is very interesting to see.
19:11And it'll again boil down to what valuations it comes.
19:14We have all the numbers floating in the market, whether it's going to come at this or that
19:18multiple.
19:19But I think that is one name I'm keeping an eye on when the IPO happens.
19:24And it should be an interesting listing.
19:26It should definitely be an interesting listing.
19:29Any quick word now from between now or rather the markets have, and you'd agree with me,
19:35borrowed returns from the future, from the way we've had or the run we've seen in the
19:39last one year.
19:40Do you feel that between now and maybe the end of this calendar year, it could be a lot
19:45more lukewarm, you know, consolidated kind of phase?
19:50Or do you feel like more new record highs are very possible?
19:53And also, where do you think the leadership potentially could come from in the next six
19:56months for the markets?
20:00Yeah, I think in the next one year, investors should be aware that you should not expect
20:05more than mid-teens kind of annualized return for the next one year.
20:09If you get a mid-teens, I think you should be more than happy.
20:11Anything in the high single digits to the mid-teens is what index can give you in the
20:16next one year. And that is, I would say, a very good expectation.
20:20Having said that, there are no new sectors which I'm looking at, the sectors which I
20:24mentioned, both urban and semi-urban consumption, industrials and CapEx.
20:28These will be the two major areas where I think a lot of money can be made.
20:32Valuation, one needs to be very aware of at what prices you're buying.
20:36One thing which I'm noticing in the market is the breadth of the market has gone down
20:40big time. Say around six, eight months back, almost 62 percent of the small caps were
20:45outperforming the small cap index.
20:47That number has gone down to almost like 25 to 30 percent now.
20:51So breadth of the market has gone down.
20:53So I think one needs to be very, very careful where you're entering.
20:57Headline wise, I don't see any reason why we can't make the fresh highs in the short
21:02term also, because I think all the right ingredients are in place.
21:07So very lastly, do you feel like this impending correction that we've talked about and
21:11we started this conversation with that is likely?
21:14And you did say that these corrections that you tell your clients are now very shallow
21:18in nature. Do you think a 5 to 10 percent or a closer to 10 percent correction
21:23over the course of the next six months is even a possibility at this stage?
21:29I would say a 5 percent correction is very, very possible, a 10 percent correction for
21:34the headline index looks very, very difficult without any external event, external
21:39event. We don't know what it will be because that's certainly always a black swan.
21:44But I would say looking for a 10 percent headline index, nifty correction or census
21:48correction without any external events, very, very unlikely.
21:52So for 5 percent correction is a very kind of, you know, it should be there always at
21:56least the weak hands, they keep moving out.
21:59And that's the way the market becomes much better in the long run.
22:02But expecting a very big correction in the market, I think investors should not be
22:07waiting for a very big correction.
22:10Right. Well, thank you very much, Anirudh, it's a pleasure to have you on the show and
22:15talk to you and understand the strategy of Quest Investment Advisors and get broader
22:20perspective on the markets.
22:22Like Anirudh said, these days, it's not big corrections that are possible.
22:26You're going to get shallow dips, which usually are getting bought into as most of the
22:31local money is pouring right in.
22:34With that, we're completely out of time on Talking Point.
22:36Thanks for watching.
22:49Thank you, Anirudh.