By ET Now
In a chat with ET Now, Chetan Parikh, Jeetay Investments, says would be investing in agri inputs, financials and consumer spends. Edited excerpts
ET Now: What has your approach to markets been? We have been, in a manner of speaking a very, very subdued range for the last one, one and a half odd months, we have gone practically nowhere and yet there are enough and more stocks that have created astounding wealth in a period of one, one and a half months?
Chetan Parikh: I think that the time horizon that one should be looking for is much beyond one, one and a half months. I think that the market has had a fairly good run from what it was maybe a year, a year and a half back, a lot of stocks have really given very decent returns. I think the question is now what is going to happen going forward.
Going forward, what is happening in the real economy is definitely positive and I see a lot of traction in terms of some of the key policy sort of reforms which are GST, which is the sort of monsoon which has been very, very accommodative. there is some spending power that has been created. So all the sound bites are very positive and I think that there will eventually be some sort of a pickup in capital goods, infrastructure, which has still been a bit of a dampener.
One should expect, if one really looks at valuations at 28000-29000 from a very short term perspective, it looks stretched on an earnings basis but these earnings are depressed. I still believe that there can be a tremendous amount of momentum that can come in earnings largely because ROCs, ROEs are depressed, you can have asset turns and margins improving which can cause ROCs to improve.
A better measure may just be a price to book value ration and on that I think that the markets, if you look at long term averages, the markets look undervalued. Going forward, a lot will depend, I believe, on what happens both domestically, of course, domestically the story is far, far surer, I think what happens internationally.
ET Now: That is uncertain?
Chetan Parikh: Very uncertain. It is extremely uncertain and I feel nervous on the global macro risks and India is interdependent, we do need for this sort of 8-10% growth that most people are talking about, including key policy makers, I think that we do need sustained capital inflows. Capital inflows will come into India because of the sort of growth that India is showing. It is definitely one of the brightest spots in the world economy but if there is some sort of a macro shock, a global macro shock because of the extreme imbalances that have been built up in the global economy which is partly the result of all the quantitative easing and the money printing, and the very low interest to negative interest rates in many parts of the world. There is a small risk of something going wrong.
ET Now: I just wanted to say that the world has been proven wrong with regards to a) predicting the Brexit vote and b) more importantly the kind of recovery that we have seen across the globe. What makes you think that India will have a larger effect to any sort of global development which may be negative? What I am talking about is we have sort of waded the storm, Brexit, Rexit, whatever have you, Indian markets have been resilient and global markets too have been post the Brexit vote, so what is that makes you so sort of cautious on the global market standpoint right now that is eventually going to have repercussions for India which we cannot sort of withstand?
Chetan Parikh: So you have a situation where the central bank high powered money globally has gone up from some 3-4 trillion to something like 28-30 trillion in the last 10 year. Global GDP has not gone anywhere up by that magnitude, not by 10X, so at $70-75 trillion this has the potential to cause disruptions, right now you are not finding very large credit growth because banks are keeping the money with themselves. This has the potential, secondly, very low interest rates can cause misallocations, wrong factoring in on the risk premium and as a result of that things can go wrong. So there is a lot of debt, the global debt has gone up sharply. These are indicators, that it can happen tomorrow but you know liquidity can dry up very fast. At that point of time, a country which is dependent on capital inflows may face pressure.
ET Now: It is difficult to predict that and position because it is something that we cannot really time. How are you positioning your portfolio say if you are a long term investor. If you are investing from a five-year perspective which actually we are advocating on the channel, how are you positioning your portfolio? What are you looking to add?
Chetan Parikh: Purely from a portfolio risk diversification viewpoint, the India story is there. It is something that you cannot say there is a likelihood of or some major liquidity risk or crisis happening in the next 5, 10 years. So I shall stay out from Indian equities. That is not the right way. The thing is to have something else in your portfolio which can do extremely well under such circumstances where there is some sort of liquidity evaporation and I would suspect that would be physical gold not gold ETFs, not paper gold, not e-gold but physical gold. Keep physical gold.
ET Now: Really, why? Lot of people are saying that buy the gold bond.
Chetan Parikh: The next financial crisis if ever it takes place and when it takes place is likely to centre around the banking system and the financial system.
ET Now: Again…
Chetan Parikh: I think so. I think that everything is interrelated. I think that you have a very high probability that things can go wrong and we look at the derivative positions. I do not want to get into specific names but there are major banks that have got large derivative exposures. A little movement in any exchange rate, interest rates can cause. Secondly, there are large currency wars that are going on which is an obviously well documented fact that also gives you that the…you have got paper currencies which can give up value pretty fast.
By ET Now
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