What about minerals, look at the massive year that minerals have had. They are back in the spotlight now with China beating expectations in GDP numbers. How do you approach the metal packaging?
Metals are great and they intrigue me. Again, we tend to be a little late to the party but earnings sustainability is important and in minerals, what we’re seeing is that it translates into numbers. These are the companies that are coming out with amazing numbers and all the entire debt issues and all the other issues associated with bad cycles are out of the way and that’s something that really interests us.
Now for us, the call depends on those numbers and how sustainable they are. Commodities tend to be volatile and also tend to have super-cycles. Now, super courses are not for 1-2 quarters or 1 year. They tend to be for several years, and if these stocks are able to benefit from a super-cycle, there is still a long way to go. We are looking at a few stocks but the important thing for me is how sustainable they are. If we feel and are convinced that there is sustainability and that it is a super cycle, there is no reason why we can’t be in it.
Will you start creating shorts in your wallet? Are you going to sell in some stocks where you think price, valuations, or perhaps a combination of the two will work in your favor if you sell now and buy later?
In the world of PMS, it’s a very gray area. Short selling is definitely not in the works, even hedging seems to be regulation or practices or brokers discourage us from doing so. So from my financial point of view, obviously we can’t. We do not have the authorization to do so. But as an individual investor or as a think tank, I would like to answer this question. The truth is that this will be a year in which there will be a wider scope. So, when we’re too optimistic about something, we get disappointed and when we’re too optimistic about something, it’s to the upside. So whatever shorts one will trade in next year, I feel they will be fairly quick. These will be more of what we call swing trades rather than trend trades.
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Any trader will understand the difference in terminology between trend-following and swing trading. The year will belong to the swing trader. If this is the answer to the traders I think they got the answer. The difference is that in the last year, the trends, rather than following the trends have been doing very well because we’ve had a secular upward movement. Next year, I feel that the volatility that will extend to the upside, may actually have the potential to go down and push things down and we might have the potential to go up.
Therefore, it will be a swing trading year rather than trend following. For a trader this is a very accurate answer but for me as a PMS I just can’t do it.
What two lines would you like to draw for Nifty this year?
I would look at around 19,000 on the upside and it might be 16,500 on the downside. Again, it’s a pretty wide range but the way the markets are and what kind of liquidity and volatility there is, the ranges have to be wider. Personally, I think this is not written in stone but written in sand. There will always be some overlap or things will be pushed towards the end. But we will play on a larger scale. In this range, we will see massive momentum in the sectors. Many sectors will go up and down, and this is where the money will be made next year.
Is this the current stage of the tech downturn, would you like to buy stocks like Infosys at every dip?
I don’t know about every drop but like I said, there are some stocks in the middle space which we’re looking at closely. They come out with excellent numbers and that really gives us solidity or the conviction that if they correct, they could be good buys and the corrections that might happen more could be because of the topic or fashion or some kind of macro because it’s all linked to interest rates. The moment interest rates rise, the market moves toward value rather than growth.
We saw just that a year ago. In January, February and March of 2021 we saw a similar movement in the US bond yields which rose dramatically and there was alternating trade, but by April and May the whole trade actually shifted and bond yields fell again, The entire technology sector continued to reach new heights. I feel like this could be a two-part year and we’re looking beyond three months or a quarter cycle as we’re trying to forecast bond yields and inflation. These things are hard to predict.
We said don’t fight the Fed and the Fed was saying inflation is temporary and now the procedures are completely different. We find that most people are just very good storytellers, and very few people have predictive powers as far as global macros go. When we’re not that specialized, the best thing is to look at companies that are making very good profits that have excellent price trends and when we put them together, we feel like we’re going to be able to go up and down.
This will be a year as not all months will provide superior performance. We will have a few months of underperformance and outperformance but net, in the end, areas of growth or companies that will generate good profits will emerge because that is the basic premise of investing. Ultimately, we want to invest in companies where there are accelerated earnings and this translates into an accelerated share price, one cannot separate these two things for long.
I would like to talk to you about reopening the trade. There will again be a revenge dinner, revenge travel, and the fashion stocks will also start to perform better. How will you deal with this issue? Does this subject have no legs to gather?
This stuff is really very real. There is definitely a desire to take revenge for the purchase. People are going out and buying cars now and one can see the queues for all these premium and holiday premium cars. The Maldives is more famous than Goa. Therefore, retaliatory trade plays a role in many areas. But the question I ask myself as an investor is what is a one-time revenge trade and what is the long-term trend?
As an investor, if I want to make money in the long-term trend, I want to look at companies that are profitable for three, five, or 10 years, I think I have to look at what have become permanent habits or have become part of the ecosystem where The consumer will go out and consume it again and again. This is why revenge trading might be a great trade in itself from a stock market point of view, but if one is looking at secular topics, one should look at those companies where there is a behavioral change that will keep the consumer back. This is something that only earnings will tell us. We are looking for consistent profits as it will give us consistent price movements.
Since you’re talking about multi-year cycle earnings that justify valuations, there’s a topic that’s never about months and weeks; It is always multi-year and that is real estate. Do the operational updates coming from Brigade, Sobha or Macrotech all look good?
It’s great because this is a sector that has been through a 10-year consolidation phase. In these 10 years, the sector has done little except for two or three stocks that go up and down and not much wealth has been created by investors. Even these companies struggled on the ground level. So certainly a few key players will appear and have opportunities. But this is something like the electric car business. In the end, where are the gains?
There are a lot of hopeful deals. But we are not traders, we are investors and I ask myself one question over and over – show me the profits. When the profits come, we take part in it because one might be a bit late, one might not get rock bottom, but the meat of money is not only made early but in the middle of the trend when you start to have companies that continue to do well, give Notable numbers quarter by quarter, and many of these quarters eventually go on to make up years.
We’ve studied a lot of these world plays, FAANG stocks. See the history of Apple. Apple is a rectangular name, it’s a case study but has had a very checkered past. The best money has been made lately in the past few years. One example is the great investor Warren Buffett. Apple was his biggest dollar fortune creation, and when did he buy it? Did he buy it in the IPO? Did you buy it early? Not real. He bought it pretty late, but the kind of wealth he’s creating shows that once the company starts showing the numbers, the kind of wealth creation that’s going on there with low volatility is great and that’s the kind of space I’d like to be in for my investors.