Let’s look at the good news and the bad news. The good news is that the bulls have managed to defend 17,000-17,100 for a sustained period so far. The bad news is that volatility in global markets is now getting worse. Which key data should you focus on?
The outperformance of the Indian markets has continued to increase and as you said we have not fallen below 17k while most markets are down 25% to 45%. I checked out the Korean markets this morning and they are down 33% from their peak last year. So we’ve outperformed very badly and to that extent the earnings season has become very important because the results have to support the market and so far the results are not bad.
All technology stocks reported decent results. The prospects are blurry, but it’s not like the downside will be huge with them. If the Nasdaq corrects another 15-20%, Indian IT stocks may correct 10-20% as well, but we won’t see a blowout decline.
On the financial side, the banks’ results were similarly decent, so the fundamental downside for India is protected at this point. The key is that we have not yet seen higher interest rates actually having an impact on economic growth as rate hikes have only happened in the last three to four months. So if they play out, we could see more downside.
In short, people should only buy stocks on corrections and not on some kind of euphoria where suddenly there is a move higher, and like mid-cap and cement stocks where due to the Adani purchase, many stocks shot up and people just bought them and then those stocks fell 10-20%. These things should be avoided.
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Tata Elxsi is one of those crazy stocks where everyone thought nothing could go wrong, but for the first time Tata Elxsi has disappointed. Are we threatened with bad corrections?
Initially, people thought nothing could go wrong with Tata Elxsi and that’s why it used to trade at a dismal valuation. Then suddenly the company changed and started doing so well that it’s outperformed quarter after quarter, year after year for the last three to four years, and I think it’s become a cult stock.
I look at so many portfolios everyone has Tata Elxsi so that becomes a risk when disappointments come and disappointments came this quarter and I was on their conference call so I think the near term outlook is looking fuzzy in some segments , creating a scenario where the disproportionate earnings growth phase appears to be over, at least for now. It might restart in a few years, but it’s over for now and because it’s so highly valued and so over-obsessed now. It opens up a significant downside, more so than the rest of the IT package, so I think people should be careful. For people who have made big bucks and don’t have a three-five year perspective, it makes sense to book now.
The demand for festivals is changing. It took me 45 minutes to commute to a patch on a Sunday night where the normal commute time is 20 minutes?
I think the festival demand will be relatively strong this time. On the retail side, some of the retail companies might do better than expected, and some consumer segments might do better, and some of the consumer frontrunners may like
etc. Perhaps the festival season has brought out the animal spirits and let’s hope it lasts and provides further downside protection for the markets.
Speaking of expensive stocks, there has also been a bit of disappointment, particularly on the margin front. What do you make of it?
Avenue Supermarts has always been, and continues to be, a very expensive stock. After the earnings, I saw some earnings downgrades from some analysts, but the stock still trades at 110 times year-to-date earnings and 90 times next-year earnings, defying all valuation paradigms.
So I wouldn’t be a buyer of this stock at these prices and because of the illiquidity premium the stock has held up because a lot of the funds, PMSs, mutual funds that hold the stock are not selling and are holding the stock to that extent but I don’t think that such valuations can hold up, especially at a time when the 40-50% growth story doesn’t seem real. So more like 20-25%. The 20-25% growth stocks trading at a 100-110 valuation will never hold up. I think this stock’s returns will be below average for the next few years, in my opinion.
(Disclaimer: Experts’ recommendations, suggestions, views and opinions are their own. These do not represent the views of Economic Times)
https://economictimes.indiatimes.com/markets/expert-view/time-to-book-out-of-tata-elxsi-avenue-supermarts-sandip-sabharwal-answers/articleshow/94907899.cms Tata Elxsi Share | Avenue Supermarts Share: Time to book out of Tata Elxsi & Avenue Supermarts? Sandip Sabharwal answers