personal finance

Do not panic, be selective, buy companies which you know and understand: Madhu Kela


The recent selloff in HFCs looks like speculative unwinding and for a long-term investor, these are brilliant

opportunities to buy these companies, market veteran Madhu Kela, tells ET Now.

Edited excerpts:

What went wrong in the market and should investors be worried?


This looks like a technical selloff. Both the NBFC companies came on your channel and clarified that their short-term liquidity situation is very good and when I say short term, they said that for the next one year they have enough liquidity in the liquid accounts to match the liabilities. So, this looks like speculative unwinding and for a long-term investor, if you really understand the company and if you have faith in the management, these are brilliant opportunities to buy these companies. Wherever the management is solid, they will be able to weather this storm and come out stronger.

Though some would argue silly and parallels have been drawn that emerging markets are going through a downturn, there is a rout in emerging market currencies and India cannot remain isolated. Should one focus on that also?


That is the point I am making. I just want to clarify that even if I have mentioned a company’s name, I am not recommending those shares to be bought or sold. Something like Indiabull Housing Finance, which enjoys the highest credit rating by CRISIL itself — a AAA paper — to think that there will be liquidity issues in these kind of companies is completely unwarranted in my view.

The grain of the truth is that interest rates are hardening and the cost of capital is going higher. Historically, we have seen that the financial sector and especially NBFCs perhaps may not do all that well when the macro regime is not that favourable. What is your view?


I agree with you to an extent but if your borrowing cost goes up, your lending cost will also go up and that goes up for the whole system, not for one or two individual companies. If it goes up, the borrowing cost will go even further up for banks. Yesterday provident funds had to increase the interest rate from 7.5% to 8%. So to think a 50 bps or 75 bps increase in interest rate will bring down the system to a halt, is not right.

Is one better off picking bargains in the financial sector? Indiabull Housing Finance, Yes Bank, some of these stocks which have fallen because of technical factors and because of sentiment or should one now keep it safe and stick to IT and pharma because of the tailwind in rupee and dollar?


No. I was the first one who came to your channel and recommended buying pharma stocks but at these valuations — I will stick my neck out — you very rarely get these kind of companies down 30-35% and if it is for some fundamental reason, then one can understand that something has gone wrong. But if it for technical reason, then these are the times you have to stick your neck and put your money.

Even though looking at the screen will make investors nervous, I can feel a sense of optimism in your voice…


Main saalon se bolte aa raha hoon ki ya to news acchha hoga ya bhav acchha hoga, jab news kharab hai to bhav acchhe hote hain or jab news acchha hota hai to bhav kharab hote hain (I have always said either news is good or the price is good. If news is bad, price is good and if news is good, price is bad.)

The news is not bad and yet stocks have fallen…


Yeh bata rahen na boss yeh satta bazaar hai yahan kuchh bhi sakta hai (This is stock market, anything can happen). That is the point. If you are on the right side of speculation and if you are a long-term investor, and I repeat that if you do not understand the company, do not buy individual companies, rather invest your money in a mutual fund. But if you do understand companie and fundamentals, of then these are great opportunities.

When people see this kind of a decline in their portfolio, they get nervous about their mutual funds commitment and SIPs. What is your message?


My message is you have to go with time tested people, you have to go with people who have withered these kinds of situations in the past. We have seen how these companies came out even in a 2008 crisis which was far deeper than anything we are seeing today. So you have to go with people who have got credibility and the capability to overcome these kind of situations.

In general your view is that one should be more constructive towards largecaps rather than midcaps and the party in mid and smallcap stocks is over?


I would say the valuation which you are getting for largecap companies are the valuations you normally buy in midcap companies. Where is the question of going for midcap companies if you are getting the same valuation for largecap stocks?

Your big call right now is that one should buy good quality NBFC stocks in this fall because suddenly they are available cheap?


Unfortunately you got me half an hour late, most of these companies are up 25% from the bottom.

You have become a private investor and is not managing mutual funds. How can we bet on Madhu Kela’s intelligence and his enterprise?


You have to get me more often on your channel.

What is your message for our viewers, do not panic and buy the fall?


Yes absolutely but be selective, buy companies which you know and understand.

What could go wrong from here which could inject 15-20% downside?


Any systemic global risk or real big spike in oil prices. Something which will be universal and not be selective to one or two companies but that risk remains. I see anything of that kind in the horizon, I do not see and for a change Mr Trump is also with us to bring down the oil prices.

So you are not worried about rupee at 72 and crude at 80, you think markets are discounting that?


Markets are more than discounting that and again remember this currency when in 2014 rupee was at 70. In 2017 it became 63 and from 63 it has gone to 72. So when you look at from 63, it looks like 12% depreciation but if I look at from 2014 level, we are up 3%, 4%.

Historically when markets have been volatile, consumers they outperform but do you think right now consumers run the risk of underperforming because in this market volatility, the first sector to decline is consumer – Britannia is down, HUL has been volatile, Marico is down. Do you think consumers will start underperforming now?


I think so. I would say that wherever you have very-very steep valuations and wherever you have extremely concentrated institutional holding on these steep valuations, those are stocks I would definitely avoid.

What exactly are you buying or selling right now, any theme, any ideas?


I do not have a problem in telling but the problem is in this kind of volatility what I buy and sell changes. If I tell you that I am buying this and I end up selling it one week later that will not be in line with my character and personality. So I would avoid naming individual companies.

Anything apart from NBFCs which you think is now nearing a level where markets are not appreciating or recognising the potential of earnings recovery?


One big theme is that I like the pharmaceutical sector, specifically the API players because there is structural change which is happening. The cost of producing drug is going up dramatically in China and it has gone up a lot in the last six months. That is one theme and sector which should continue to do well over the next few years. So again if you know the companies, you know you can monitor them, these are good sectors and select companies are available quite reasonably well keeping their long term fundamentals in mind.

What is your view on the Nifty, where do you think the Nifty is headed for next six months?


I leave that question to you.





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