Markets $5 trillion. There is no nervousness in the market. Everybody is saying, okay, election is important. Election cycle is important. But the fact that you hit a new high in terms of market cap, that just tells you that ahead of the election cycle, the market positioning is robust.
It seems to be, but people seem to still be very scared. Everybody I am talking about is little worried that the markets will fall or that they have reached a peak and there is so much high. So, I think the problem is markets peak on optimism, not on relative pessimism, like we see today. So, I think while the markets are going up, the mood seems to be less elevated across the globe. So, I still think there is some place to go. Just speaking, of course, as a portfolio manager you have to be long and therefore very optimistic, so a little bit of biased stance. But I do not think this is really the time to fear too much of a fall even though there are elections.
But is the market obsessed with that 400-seat number and if that were not to happen, will there be disappointment then?
I do not think so. I think this is more a made-up phenomenon around the PR that is going around, because I think the markets just want a stable government. Do not derail whatever is happening. Do not bring in things that will change the entire, for instance, tax structure, subsidy structure. But as long as you do that, I think nobody cares. Of course, the markets will pretend like they care. So, every time there is a news that X will happen, there will be a 2% or 3% fall, but these are typically short term and they go away. I personally feel even in 2004, there was a change in the government and the left parties came to power, you would have thought this is the worst time for markets. The next three years was 200% gain in the market. So, I do not know whether sometimes politics plays a role or sometimes politics does not play a role.
Look at that data point you want to react the PE multiple. 2019, 19 times. Now, one year forward, that is a reasonable way of looking at things. Now, we are at just sub-20. So, it is not that you may be at an all-time high, but it is not that the multiples for the Nifty are wildly expensive.
One year forward is not actually that bad, because I think A) earnings have caught up. So, if you look at the numbers from the last three years, the PE multiple has actually come down, although the Nifty has gone up considerably which means that the growth of the Nifty itself is lesser than the growth in earnings that you have seen over the last three years.
I think this is simply a change in earnings, maybe part of it is post COVID but it is also that it has made the PE a little less expensive. I will put a caveat here, the NSE changed its entire methodology of calculating the PE sometime in 2020 or so, 2021 I think, when they moved from standalone to consolidated earnings, which means what was a 24 PE was actually a 21 PE, but still the numbers are so drastically lower compared to last time that even that with that caveat we are at lower levels than what we were in the last election.
So, I do not think this is a meaningfully expensive market from the Nifty side, but the expensive part might actually be in the mid and smallcaps.
We were talking about great infrastructure good roads, etc, what does that translate to just purely from a stock market perspective, the fact that this is a sector to watch out for in the election, is that a sector that merits attention according to you, real estate, infra, etc?
It is. In fact, you look at the numbers right now and the kind of budgetary excess that we are receiving. The government is actually trying to buy back its own bonds because it has too much money. It does not want to issue so many bonds out there.
So, the excess money that is coming in I think it is going to go into infrastructure spending in a big way. Of course, they have already announced plans. There have been plans announced three-four years ago. They did a 400,000 crore plan for the railways and the railway budget is not now separate from the main budget.
It is part of the main budget. 400,000 crores is ridiculous and what they are talking about in power, for instance, is another number that boggles the mind.
There is about 600,000 to 700,000 crores worth of funding for projects, part of it from PFC and REC, part of it from other sources that is going to come just from the renewable area.
I think take power, seven take telecom, I think a lot of changes will happen not from the government side, but mostly from the private side, but also roads, ports. We have not even started with ports. Bombay is a port. How much do you see? Even passenger traffic moving on the sea. I think we are in the beginning of infrastructure expansion not at the end of it.
Just curious to get in your take on a lot of these companies, the profitability metrics, how you are looking at the landscape of some of the listed players like Paytm, you got Nykaa coming out with its numbers today as well.
We cannot comment about Paytm. Unfortunately, I have a conflict, but in general, I would say there are two areas to this the one-time provisions, it may not move ahead in future times but there is also the fact that a lot of these companies have large cash balances.
Zomato has about Rs 12,000 crores and so do some of the other companies.
They are not necessarily in need of financing right now. So, the losses sometimes are not cash losses. They are just losses because of option compensation and therefore does not hurt cash so much. So, you are not worried about them going bankrupt. You are just worried about them being valued richer than perhaps they should be and a lot of the valuation corrections have already happened.
I think some of these companies may actually be value, interesting buys for the longer term, but I would also say business landscape changes, especially in the financial area, have been very-very dramatic. I mean, I am talking even of the Kotaks and the HDFCs who have suffered as a consequence. So, you are going to have to re-evaluate the multiples. You are going to pay some of these companies because the regulatory hit is so much larger.