Expect markets to be choppy and fluctuate 10-20% in the next one year: Rajat Sharma

Going forward, pharma companies will perform very well and earnings will expand a lot, says the CEO of Sana Securities.

What have you made of the auto sector as whole? Are you being very selective when it comes to autos?
Hero Moto is one of my top stock ideas and it has been since April this year when we made a lot of buying in Hero Moto and the reason is simple: post this lockdown, you will see a lot of pent-up demand in the auto sector which will pick up. People are not going to take public transportation. Auto in the two-wheeler space is still not as expensive and is still affordable. India has a very-very big middle class. So the demand for this is not going to go down and a lot of the negative that had to be factored in has already been factored in Hero Moto.


Forget the Covid period since February, for the last two-three years, auto sector has not been performing well, particularly in the two wheeler space because there was a lot of talk about changing regulation for emission norms. So for the last two years, the stock price for Hero Moto has been struggling. Two things will happen. All of that will take a backseat as there is a lot of pent up demand. So you will see a lot of spike in the auto sales number going forward. Now how much of that spike will impact the EPS going forward I cannot predict but you can pretty much weigh the fact that it would be fairly positive and the stock had been extremely undervalued at Rs 1,600-1,700. Even now, if you were trying to start building a portfolio, this is one stock which you should add to your portfolio even at this price.

What is the sense when it comes to the technology/IT basket?
A lot of the largecap players are best placed to come out of whatever they have suffered in the last two-three months. Again, this is one more sector where there is a temporary halt in demand. I think projects will pick up and think about it logically. IT as a sector is the only sector which is going to benefit with this lockdown going forward other than pharma because when you are talking of distancing and work from home, IT is the backbone of an environment where economies are running from home. So this would be a temporary stoppage and for Indian IT, you see a lot of the revenue coming from the overseas markets.So an appreciating dollar will also add to, at least reducing the margin pressures that you are talking about.

Infosys has remained one of my favourite stocks and I have it in my portfolio. I have not sold any. In fact I have considered buying more which I have not done so far purely because I do believe that the way markets have run up in the last one month or so, there would be some cooling off in the market. Whatever fresh money we are getting we are allocating some of it to IT.

There is a point of view emerging that perhaps financials and NBFCs have been resilient and that banks may not be as badly hit as anticipated. Would you agree?
I would not agree or disagree and I will tell you why. You talk to the managements of any of these banks. They are not sure right now; so I am not so sure how fund managers and analysts are so sure about how much of the money will default and how many people will make the payment. Economy has not started fully. I do agree that a lot of corporates have made arrangements. A lot of healthy corporates know that this could last longer and they have to roll over the debt so a lot of companies have made arrangements. Everything is known right now but how long does it go on, how long will it take before markets completely open up and companies start making money, nobody really knows. So if any analyst or any fund manager or any big investor tells you the banks NPAs will not be as bad as everyone making it out to be, just ask them how do you know and if you get a justifiable answer do tell me because right now nobody knows what will happen in the next six months, eight months or a year from now.

There are NBFC exceptions; gold loan companies which would probably stem any big defaults happening with the gold prices. Other than home loan, housing finance is another sector which will probably withstand this. If everything kept going the way it was going or as I said, the pent up demand comes back, things are not going to be as bad. Yes, surely they are undervalued. You have Federal Bank which is one of my favourite banks. ICICI Bank has fallen from Rs 100 odd levels to Rs 44-45 and that is not just one private sector bank; that is the state for a lot of NBFCs as well and there is a reason for that because nobody really knows what will happen other than of course some of the equity fund managers and analysts. I do not know where they are getting the data from but I can assure you that a lot of companies are not sure.

What is the take when it comes to the pharma basket?
Pharma has remained one of my favourite sectors for a while now and the reason is the pharma sector has underperformed for the last three or four years. Maybe 2016-17 was when it had peaked out and it had been falling since then. And if you look at it, the prices are extremely undervalued in an environment where anything positive that you could hope for the pharma sector is happening; whether it is a pandemic or relaxed regulations or relaxed checks from the FDA, which is great for Indian pharma. So I think going forward pharma companies will perform very well and earnings will expand a lot over here.

One thing that I wanted to say is that what I see right now is a lot of investors are getting carried away and investing huge amounts into the market. If you look at the overall market right now, a lot of the money that is coming in is actually FII money. I was just looking at this morning on day 10 or day 11 of the month and Rs 14,000 crore has come in from FIIs alone. That is something which happens once or twice in each year, one or two months in a year and we have got that happening in the first 10 days of this month. I do believe that markets will pull back and you will get a better chance to enter into these stocks; whether it is pharma or any other stocks. At the same time, I do not think you should be waiting for 6000, 7000 levels. If that happens, you should invest aggressively. But the key to deal with this market would be to deploy some capital and let your capital resources replenish. Once they do, deploy some more capital at whatever levels the market may be trading because personally I believe in the next one year, markets will go up 10% down or maybe 10-15-20% but they will remain choppy that way. So you will get opportunities. Do not wait for a very deep and big correction. Stocks like pharma which are available cheap you should buy them. Do not deploy all your capital at once.Make a discipline that x% of your capital should always be in a savings account where you still make 5-6% keep it there. Once you have replenished it, take a part of it, invest it in stocks and go on about building a portfolio for the next one year and you will make a lot of money.

What is the sense that you are getting with the gush of liquidity?
Markets are going to remain volatile for the next one year or so. They will be up 10-15%, fall down another 10-15%; a sustainable rally looks difficult from this point but so long as interest rates remain near zero world over, there will be a lot of this hot money coming in and going out from Indian markets. As I said, Rs 14,000 crore in the first 10 days of June and this money will get withdrawn equally quickly. There is no sustainable long-term money coming into the market but it is all FII money.

So the road ahead for me would be for the next eight months to a year maybe longer, you will see markets remaining very volatile. But then yes, whenever there is a correction, more than 10-15%. there is a lot of money; even retail money and institutional money from within India which comes in to absorb that fall. A lot of people are preserving and saving capital. I see a lot of investors putting money in debt and in fixed income instruments and they are waiting for the fall to catch on to it and the whole landscape has changed. Financial advisors advise them to buy any dips; so I do not see a very deep correction. But you would be best placed if you buy systematically over the next one year.