Market Ahead: No Single Theme Driving Volatility, Warns Dalal & Broacha’s Milind Karmarkar

“I am not saying that the market will go up five times, but I am seeing the repeat of that. So, we are seeing, as you said, huge volatility, not the kind which we saw earlier, but still a huge volatility,” says Milind Karmarkar, Dalal & Broacha Portfolio Manager.

We have seen all shades of markets last week.

Yes, absolutely. Euphoric high on Monday, panic low on Tuesday, bout of short covering on Wednesday and Thursday and a great follow up on Friday. Where are markets headed? So, actually, again, as always, I go back in history. So, in fact, 2002 to 2008, that period was one of the best periods to be in the markets because you saw the best, you saw the worst. You saw what happens after a coalition comes in power. You see what happens when a liberal party like Congress is supported by communists, the market goes down 20% and after that the market goes up five times.


You have seen that happen. I think we are seeing a repeat of that. I am not saying that the market will go up five times, but I am seeing the repeat of that. So, we are seeing, as you said, huge volatility, not the kind which we saw earlier, but still a huge volatility. And now we have a government which is a coalition government all said and done, though BJP has a significant number of seats, but it is a coalition government and there will be coalition politics will come into play.

So, my belief is that whenever a coalition is at the centre, then you see a decent growth. The clear focus is economics. The clear focus is to do better for the masses and that is what drives the markets, that is what drives the economy as well.

And, if one looks at the history of last 20 years, I am taking a leap from your answer, markets have done rather well during the coalition period also.


So, this entire mindset which everyone has that the new government, ab ki baar coalition sarkar is not good for the market, that should be dismissed?

Very true. Absolutely. That should be dismissed completely.

So, let us understand the market contours. The leadership in the market is very well defined. Capex, policy, railways, defence. Will that leadership continue?

My view is that, frankly, now the market is far better discovered than what it was in 2003-04. There are so many analysts, there are so many funds, and everyone is researching companies. So, according to me, market is fairly discovered market.

There may not be a single theme which will drive the market. The only mega trend which I see and I have been talking about it earlier also is consumption and rising per capita income. So, whichever industries benefit out of that will continue to do well.

Within that, of course, there are smaller trends which are also there, like you said, whether it is railways, whether it is power. But again, there is a slight difference here. What will happen probably is that the PE expansion will not happen going forward. You will get the returns which earnings will give you.

Do you expect them to come down?

I do not see it immediately. Five years down the line, I do not know. But immediately, at least it is unlikely that the PEs will contract, especially in themes like railways, power and these, because there is a defined growth path there for next four-five years.

Last week, we saw that there was a complete change of gear, reverse gear in terms of the stock outperformance and fifth gear in terms of outperformance. FMCG made a comeback, autos made a comeback. The general view is that a coalition government means you need to fix the rural economy. You need to take care of the distress in the rural India, which means more money in the hand of consumer and that anything which has got to do with more money in the hand of consumer, that theme made a comeback. Do you think there is merit in thinking like that?

Again, if you look at companies like say, Hindustan Unilever, what one should realise is that it is a deeply penetrated market. You go to a small village, you will find a sachet of surf, a sachet of shampoo and so on and so forth. So, I do not see a significant growth there. But yes, the sluggishness in the economy will go away and because of that they will be able to deliver 8% to 10% growth, so that is definitely there.

But I think they are already priced for that. But typically, whenever there is volatility in the markets, much of the money, smart money, as you call it, moves to these places like whether it is FMCG or whether it is technology.

If somebody is buying these stocks at 70-80 PE multiples, is that smart money? I do not think that is smart money.

No comments.

That is not smart money.

But yes, for the shorter period of time people feel that there could be uncertainty, so they move to these stocks, like technology did a good comeback last time. Because again, technology is not dependent on Indian economy. It is more dependent outside. Again, if you ask me, how do you think the outside economy will do? I have no answer for that.

IT sector is growing in between 5% to 8% depending on the company you look at. I think a double-digit growth is still a distance away. It is not going to happen in FY25 for sure and FY26 we do not know.

As I said, no comment.

You have not bought IT and FMCG.

No, I have not bought anything.

What did you buy in Tuesday’s fall?

So, I did buy whatever I had in the portfolio. I did not buy something new. But I found a good opportunity when Larsen & Toubro fell. So, we bought Larsen & Toubro. I found a good opportunity when Trent hit a lower circuit.

Trent hit a lower circuit?

Yes, I did for some time and 10% down. So, we bought where we had not been able to buy earlier because it was trading at slightly expensive valuations than what we think in the shorter term. But we got this as an opportunity. So, we sort of upped our weight in Trent in the newer portfolios. Older portfolios, there was no change.

When there is a shakeout in the market and this time the shakeout lasted for barely few hours, it did not last even for fairly few weeks. Normally shakeout, they last for a few quarters. Now because of technology, awareness, lot of other factors, the shakeout lasted for few hours only or a few days. The leadership historically changes when there is a shakeout. So, do you think that the leadership in the market is unlikely to change or will change because of this Tuesday shakeout?

Let me put it this way that as of now, if you ask me, apart from these railways or power or some of these, there is no leadership in the market as of now. The entire market has moved up. So, whether there will be a new leadership kind of a thing, I really do not know. But at the same time, I have confidence that the market will grow for next five years and because of that, again, as I said that I still believe that the mega trend is growth in the Indian economy and growth in consumption or growth in per capita income.

So, anything to do well, what has probably not participated. Pharmaceuticals has not participated much and many times I have spoken about this that affordability is the key factor for growth in Indian pharma, especially India focused pharmaceutical companies.

And if you believe that your per capita income is moving up from $2500 to say $5000 or $ 6000, then pharmaceutical companies which have not actually participated in last two-three years could participate.

That is about it.


Let us look at PSUs in general, because everything which had a suffix PSU or a prefix PSU, that has moved up. Will markets now start differentiating there?

I think they should start differentiating. Because if there is earnings growth, then you look at the PE and then you decide whether to buy or not. But otherwise, anything to do with PSU going up, I think it was a sentiment driven rally which in all probability will stop.

Where are excesses in this market?


There are excesses?

There are excesses.

But you will keep railways and power aside.

I will keep railways and power aside. But if you see in the last six months, they have gone into a time correction. So, we have not bought anything in railways and power for last six months.

Your last purchases were, what, beginning of the year or that is the time you bought into newer ideas?

Yes, beginning of the year.

And you bought into capex and you bought into few railway stocks.

Yes, correct.

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