It is just one of the phases of the market that everybody likes when correction comes and before they get a chance to buy, the markets recover.
Sandip Sabharwal: Yes, so I think there are two factors playing to it. One, the foreign investor selling seems to have suddenly died out and although they are not buying in big numbers, but still they are small positive numbers and domestic liquidity, as all of us know, continues to remain strong. Mutual fund figures for I think the last month are still to come out, but they should be healthy. So, there are flows into mutual funds, PMS, AIF, etc. So, I think that keeps the market buoyant. On the other hand, we are also seeing huge supply these days, like on a daily basis now we see offer for sales, QIPs, etc. In fact, I think in last many days, daily average would be more than Rs 7,000-8,000 crores. So, that eventually will I think lead the market to give up some gains is my best guess. So, September, October, in any case, tend to be months where after big up moves, some corrections tend to happen globally also historically. So, I think these two months we have to look out for.
What about the other way around, which is that Fed has pivoted, crude is down, yields are manageable and dollar index is down, which is that typically when these factors are at play, FIIs, they tend to buy, they tend to buy into emerging markets. If history is anything to go by and FIIs they start buying, could we have a situation of no sellers now?
Sandip Sabharwal: So, the only thing we are missing out like I mentioned was the huge supply which is coming into the market today. Can Indian markets absorb a daily supply of 7,000-8,000 crores of equity, I think that is the question and the quality of the issues also is reducing, more loss-making companies are coming at high valuations.
All of us know what is happening on the SME side of the market. So, the primary market is more frothy than the secondary market and that has historically been a concern. The points you raised about lower crude prices, dollar index coming off, etc, are valid concerns, which typically should be positive for emerging markets, especially the consumers of commodities.
So, most commodities have, in fact, corrected. So, if you see steel, iron ore, all of them are at multi-year lows. Copper, aluminium, etc, which had run up earlier part of the year, have corrected more than 20% from the tops, so that is good for inflation dynamics overall.
But the RBI continues to maintain a tight stance and we recently started seeing some downgrade in GDP expectations also for India. So, if the rates remain high, then some growth concerns could also come up. But overall, we are not in a bad state in the sense that we are looking at any kind of market meltdown, just a normal correction.
Where you stand when it comes to pharma? Are you being selective here?
Sandip Sabharwal: So, right now, among the pharma stocks, the only stock we hold is Sun Pharma. We held Lupin from a very low level, which we exited because the stock ran up so much. But the news flow around the entire API story and whether API could, because of restrictions on China, whether that becomes a big story or not, that we have to see. But it will be more long term, like it is a three- to five-year kind of horizon, because the approval process itself will be so long.
Is it time to hold, let us say, slightly higher than normal cash, 10-15% is the normal average, which a lot of folks hold, but is it time to make that 25%, maybe look at some tactical trades or stick to 15, do not try to be cheeky?
Sandip Sabharwal: I think 15% is okay simply because of the fact that my view is not for a market meltdown, but for a correction. So, in that phase, and we have typically also seen that all stocks, all sectors do not follow the same cycle.
Some companies might continue to do well, even when the corrective phase is on, unless and until the market goes into a deep sell off.
I think that much is a good cash level, which gives you the opportunity to buy the stocks you want whenever the correction happens and you are not with zero cash also at a time when valuations are actually high.
Since we were talking about SBI and SBI Card, just wanted to know what your outlook is on both of these counters, because Goldman Sachs is talking about how there are multiple headwinds when it comes to SBI as the ROAs are peaking and that the best of the credit costs now, that period is behind us. Would you concur saying that, yes, we could see some asset quality headwinds now building up?
Sandip Sabharwal: Yes, and that is a concern for the financial sector overall, the banks overall, because the asset quality obviously has peaked out in terms of like it cannot improve further from where it is now. Now, the key is whether there is a significant deterioration or not and I think that will determine how the banks will do. So, NIMs are under pressure and the benefit these companies were getting, banks were getting because npas were continuously coming down and write-offs were reducing, that will no longer be there from next year, or maybe the second half of this year also.
So, earning moderation will obviously be real. But I think on the particular on SBI Card and SBI, so I think there is a dichotomy because they are saying SBI Card, the asset quality concerns are peaking out, whereas they are growing for SBI.
Both of those things do not match because cards is unsecured business. So, whenever the stress starts, it starts on the unsecured side first.