Deepak Shenoy, Founder, Capital Mind, says “I would not say book profits or anything like that. I think all market times will show opportunities to both enter and exit on a stock by stock basis. So, one has to make the calls based on your portfolio.”
What do you make of the market texture? Do you think this consolidation and sideways moves will likely continue?
Deepak Shenoy: It has only been sideways a couple of days and the broad market, of course, has been broader. The broader market like the Nifty 50 I think has been kind of consolidating. But we have seen the midcaps and smallcaps go up quite a bit last month. So, there is a normal kind of a correction that seems to be coming.
It is not even a correction, it is about 3-4% off the top. So, I would say you want such times just to kind of even out the over ebullient times where you want to balance things out. But I think, yes, there is some froth that was there in some of the stocks that has probably corrected a little bit. We are expecting a little more, but that is just part of the game. If you do not have the bad times, how are you going to have the good times?
The portfolios seem to be bleeding a lot more because the smallcap index, for instance, has had the biggest intraday fall since December 2023. There are sharper falls is what I am saying in the broader markets and individual names knocks anywhere between 15% and 20% on obviously public sector entities. They had gained that much as well. But which are the pockets where you would sense a bit of an over exuberance and suggest people to book profits?
Deepak Shenoy: I cannot suggest people book profits. I do not think I can give any advice on this. But in general, we are seeing that in some parts, perhaps the PSU universe got a little excited but there is a lot of value there as well. A lot of stocks are still trading at single digit price to earnings ratios with lots of growth ahead. So, this correction is more relative to recent moves rather than to anything more long term in nature. In certain chemical stocks for instance, there has been a disappointment in results. We are seeing that play out in stock prices as well.
In other cases, we have seen some banks being weak earlier. I do not know if banks are weak overall today, but I know that there is possibly some correction that should happen in NBFCs because there is a fundamental change over there. RBI has gotten quite serious about regulation. There was a speech by an RBI deputy governor. It was on their website which talked quite seriously about how they are looking closely at microfinance and P2P players and a bunch of other NBFCs as well. So, we should expect more regulatory overhang. So, some part of that correction is justified there.
Overall, I would not say book profits or anything like that. I think all market times will show opportunities to both enter and exit on a stock by stock basis. So, one has to make the calls based on your portfolio.
Are you still sticking with Paytm? The latest that we are picking up is the Kirana Club report, which is claiming that 42% of Paytm merchants are looking for other partners. The company, it seems, is making all its efforts. There is no such disruption in the pipeline.
Deepak Shenoy: We cannot comment on Paytm, unfortunately. We have a conflict. So, nothing on the stock. I hope whatever resolution happens soon and people are not inconvenienced as a result of this. I hope everybody, including the regulators, are cognizant, this is a large payments bank that they are talking about. But again, no comments on the stock. At some point, we will have to figure out when because the fundamentals have not yet been reflected in their numbers. It will happen a year down the line.
You may take a long time before the stocks turn around or it may just start to move again in a couple of weeks. But I remain positive about the future. We have actually curtailed our position a little bit in some of these stocks because they had become too big as part of our portfolios, but we continue to hold some of them because the longer term potential is still quite a lot higher. So, you will have to take a call on this on an individual basis.
Some stocks, for instance, are pure momentum and you have to play them as momentum per se, which means you get into them when they are going up and you get out of them and they are going down, that is just how the business works. But if you are not playing them for that and playing for fundamentals, I think some of the fundamentals remain very-very strong. So, a longer term thought process may still be useful for some of these companies. I am not taking names. We are still in the process of continuing to buy or add more to some of them.
What is your take on the pharma pack, whether healthcare, whether these CDMO players, etc?
Deepak Shenoy: We like healthcare; I am positive on some hospitals. That has been part of our theme for a while. We are positive on Narayana Health, not just because of their India business but also because of the Cayman business which we think will be quite significant in the overall scheme of things. We are not very keen on investing in pharma right now. There are a large amount of uncertainties.
This year we will see a lot more FDA action as well. They have not acted for their part of maybe momentum portfolios or something. But on a fundamental basis, I am still not comfortable getting into most of the pharma pack. Perhaps later this year, we will take a bigger call on it. Results have been quite decent, better than I thought they will be. In some cases, they are super surprising on the upside. I would say that I will wait for a couple of quarters more before I see the response to FDA action if any and then take a call on them.
Do you track Godfrey Phillips and ITC closely?
Deepak Shenoy: Godfrey Phillips, yes, not so much. ITC, I think, everybody tracks it in some way or the other.
Sure. So, what is your view on ITC as well? They did not point to a very big pickup.
Deepak Shenoy: Well, honestly, it is good for India if they do not sell tobacco quite as much. But I think that is a cash business in the sense it generates cash, that cash is not going to grow at a meaningful rate. Growth is not going to come from tobacco. The primary business here is going to be FMCG.
Hotels have been cyclical in the last 20 years. This time, the cycle has lasted much longer and I think they have demerged or something like that in the hotel business. So maybe there is ownership of the hotels business but I think part of that gain will go to ITC Hotels shareholders which are going to eventually get listed.
I feel here that FMCG is what their game is going to be going forward. The overhang on the stock is BAT’s comments that they will sell or they will look to monetise stake. They own a significant percentage. ITC in general in the last few years has been a relatively low float stock because most of the float has been kind of held by long-term players and therefore pricing changes, there has not been much availability in that way, what used to be earlier the government threatening to sell stake through the SUTI route, now it is BAT threatening to sell stakes.
For the near future, if you are looking at it as a three-year or four-year kind of process, this overhang will remain of just BAT selling shares. The company may do well on FMCG, but I do not think it will get the FMCG valuations simply because some of the long-term holders want to sell or one of the long-term holders wants to sell stake. So, just a fair warning that floats sometimes play an abnormally high role in India.
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