One cannot take away the importance of banking from the economy but it is a very different thing as an investor, says the Founder & CEO, Marathon Trends-PMS.
We are also entering that time of the year where at least globally there is going to be a lot of volatility. Seasonally September-October tends to see a bit of selling settling in. Would you suggest a little bit of caution to investors or do you feel we are still going to be relatively isolated?
I feel that we have a very big event in the US elections and anything can happen; it can swing both ways and both the candidates have a very different view towards equities, stock market and things like that. So there can be a big shift, there can be a very big knee-jerk reaction if A wins and not B or vice versa. Also, it seems that the way kind of noises that you are getting is it may not be very clean, it can be messy, it can go to courts and things like that so I feel that that can be a period of uncertainty early November can be a period of uncertainty.
The other factor which could affect India is the India-China border issue. It is not really covering headlines. Unfortunately something Bollywood is grabbing headlines but I think that is really serious because till now we have always had issues with Pakistan and it has always ended quietly because there has been a certain strength differential. But in the case of China, India is encountering a very different animal. Chinese are by nature very aggressive and you can see even in the way they are dealing with the US and India is a very small part of that. So the border is not cooling off and you never know when something happens. Again, I am not talking about a war or something like that but casualties, flashpoints these also are things that can lead to volatility.
So apart from the US elections also I am keeping an eye out for this whole India-China border issue because things are not cooling off. In fact the build up is just increasing day by day and that is not good news because even a small mistake can result in some sort of problems that can take a hit on our markets. I think these two issues are more compelling. These are the things I would look out for but the sad part is it is difficult to know the outcome. It is just about being in quality, controlling risk and being sensible about what you do.
There are calls for the government to step up spending. The projections for the recovery seem to be extending further and further. Do you really see potential for a comprehensive move without the financials really participating? Aren’t they too big a pocket to ignore?
I agree with you that they are a very big part of the economy and you cannot have a recovery without banks and financials but a recovery in banks and financials at the business level is okay. The question that I have to ask myself is as an investor, will I make money in the market?
I will give you an example, in the last 10 years, a lot has happened in telecom usage, the billing. There has been a boom in that space but as far as the listed space goes, investors have not made money. Bharti at best has been flat over 10 years, Vodafone Idea and many other small stocks have just vanished. There is no getting away from the fact that banking is the most important sector, it is an integral sector, it will revive, it will have to be revived. But the issue is about stocks and investing and I feel that the trend change that has happened, the baton has changed hands and is moving somewhere else.
One cannot take away the importance of banking from the economy but it is a very different thing as an investor. I ask myself will I get the leadership, will I get the outsize returns, will I be able to create alpha, will I create differentiated returns in banking as a sector? You will have time, you will have pockets yes, there will be phases but what I am talking about is a 10-year kind of leadership or a 20-year kind of leadership.
If you go down and plot the Bank Nifty versus the Nifty from the year 2000, in 20 years you will find that the Bank Nifty has just outperformed relative to the Nifty itself. You have the case of a 20-year outperformance in a sector. Even if this comes back to mean, that will result in a lot of underperformance in the banking space. I am not saying the sector itself will go through crisis, it is central, it is the heart, we all know it.