What lessons do we learn from the Lakshmi Vilas Bank affair? What could this potentially mean for shareholders?
I have said for a long time that people need to be very clear about financial stocks and non-financial stocks. When the cycle turns, the most risky stock could be a good bet to buy but that is one thing which you should never do in financials. In case of financials, once the faith goes, then you should not be investing in it.
When there is so much value in the larger well established banks where there are no issues with them, why do you want to go into that? People get enamoured by small stock prices. A lot of retail investors have already lost a lot of money in YES Bank, Vodafone-Idea stocks. There was 93% public shareholding in Lakshmi Vilas Bank with zero holding by mutual funds. If mutual funds are not holding any share in a particular stock, there should be some reason for that. They should not just run after Rs 12-13-14 stock price. Unfortunately, the value is zero and I do not think anyone is going to realise any money. People will need to write off whatever they have. With a market cap of just Rs 500-600 crore, the loss to the retail shareholders is not so great. But whoever had a chunk of it obviously lost a lot.
M&M went up 10% yesterday. What is your reading of the kind of buying that we saw in M&M?
It is part return of value in the market. There is a return of value investing where people have seen that a lot of the earlier fancied stocks especially from consumer, IT, pharma etc went up substantially and then a lot of the other stocks got left behind. We are seeing value buying come up in many stocks. ITC was a laggard, it has moved up 15-20%. We have seen a huge comeback in L&T. M&M was lagging behind and so we have seen that.
People are also trying to play Tata Motors as a recovery play for JLR. A rotational trade is happening and that is obviously benefitting M&M and on valuation, it is pretty cheap. The only issue with M&M obviously is that the auto segment remains a laggard and the tractor momentum might not last beyond December. That is something we need to keep in mind. Otherwise on pure valuation, it is still cheap and could still move up a bit.
Tata Motors has moved up for the second day on the trot. Could China’s opening up and the fact that with Biden at the helm, US-China relations could improve – be an additional trigger?
If that was to be the trigger, it would have happened when it was more or less certain that Biden is going to be the next president. It is more to do with the fact that these vaccines developments news flow have been coming and there is an expectation of normalcy returning because when people talked of personal mobility taking off during pandemic time, it was not about luxury auto. It was about the rest of the space. Now if things normalise, then with the low interest rate scenario and cost-cutting initiatives by JLR, we could see Tata Motors come back strongly.
The next two, three months volume figures will need to be watched to see whether a turnaround is taking place. People are looking at stocks which have not moved up but which could have some triggers going for them and could create an upside going forward. That is what investors are trying to bet on now.
The erstwhile favourites — IT, pharma — are getting sold out and that money is shifting into these stocks and the market cap of these companies is much lower than those sectors. A smaller amount of money creates a bigger move in these stocks.