Are we in for a period like 2003-2008 where the market was led by commodities, industrials and cyclical? What are the defined leaders of this bull market of 2020?
There is no sure shot way of knowing what are going to be the leaders in a bull market but what really matters is which sectors or companies continue to deliver numbers quarter on quarter. Some sectors are resting right now while a lot of others are catching up and will ultimately go on to be leaders because globally there is a move towards tech and I do not think that tech can in India be unaffected by it.
There is a global move towards incremental allocations for healthcare. I feel this is another sector that is going to play out very well. What I also feel is that there is this zero move away from manufacturing in China. There are a lot of themes like specialty chemicals. I personally think in the last 5 to 10 years, the best sectorial or thematic move in India has been specialty chemicals. There are very few stocks nobody talks about and for which we do not have a sector index.
But you can go back and do any statistical analysis, you will see that in the last five years, specialty chemicals has been one of the best themes and this is another theme which is moving manufacturing away from China. A lot of other such stocks that are there will also be a very big theme. I am not discounting the fact that stocks like infra, stocks like real estate have underperformed for a decade and are bound to catch up.
There will be phases of the market in which you leaders re-emerge and then you will have a small or midcap move and that breadth is what really gives me confidence that this rally is a relay race. It is one runner running a 1,000 metres versus five runners running 200 metres each. The latter will be much faster simply because there will be a fresh pair of legs rather than one guy running a 1000 metres. This relay or passing of baton is very important for the market and traditionally we have seen that this is how really larger sustainable bull markets are.
Rakesh Jhunjhunwala always uses the following that big gains are made when you identify something which is completely thrashed. Is there a big bull market in making in select PSUs like BEL or HAL or EIL or SBI?
It is possible but it will be very dependent on government action . Just because they are PSUs and beaten down, they are not going to go up. You will have to see some sort of government action and this has been a perennial potential trade. Just to take this argument further, I feel real estate is a very interesting sector that is extremely beaten down with unloved prices, in fact in the vertex of the crisis. But a few stocks look very promising. The important thing is stick to quality, stick to leaders because that really has worked in the Indian context for years. When markets correct, the pain is much less in quality stocks.
I know you said stick to leaders but if someone is looking to be a little risk-on and gets into some of the segments that could be part of the bull run going forward, what do you think an ideal portfolio would look like?
I would not take money out of IT and pharma. I feel they are correcting and may give you opportunities to add on in case you missed it earlier. Ultimately as an investor, you have to understand your time frame. I am someone who invests for many years. For me, this trend or rally is not about one month or two months, it is about multi years and for me the objective is to identify those sectors or themes which at the end of this period which could be between three and five years, are going to be the biggest wealth creator. I do not churn my portfolio month to month. I am not for a high propensity churn. I believe in compounding stories and the objective is to identify three-four themes. I will give you an example. In 1999-2000, we had a market that doubled. However, you could have made 1,000% if the theme was right. It was IT in that period. Between 2003-2008, the theme was infra and those who bet right, made super profits. If you owned IT stocks between 2003-2008, it would have meant nothing to you.
The theme of the last rally up to 2020 was financials. Every bull market has a theme and I personally think that going ahead, the themes that will dominate will be technology, healthcare and specialty chemicals. There will be money to be made in other spaces because when you have a broader bull market which you are seeing right now, you will see wealth being created and each one will have to choose stocks which suit their style.
What has happened to banking this month is unbelievable. There was a 24%-25% move in the Bank Nifty in one month. As a trader, if you can churn, that will be great but I am a trend investor and my job is ultimately to create wealth in a 3-5-year time frame and identify those trends which will prove to be compounders.
So you will have themes, you will have cyclical plays and the relay race will keep happening, leadership will keep changing month to month. But the objective is ultimately to identify that big mega trend and ride it. I have seen in the past that super profits are created in bull markets.