Midcap investors, don’t put in more than 30-40% now: Kunj Bansal

"In the oil and gas space, medium term investors should stay away from OMCs like Indian Oil while Reliance looks good," says Kunj Bansal, of Investment-illiteracy.com.

Do you think the market correction has been healthy? Some of the midcap names have fallen 15-20% from their highs, at least the ones that have some predictability in earnings. Do you think it is time to buy or just wait for the chaos around Fed announcement, FII selling to settle down and then probably take a call?
The answer to both these parts of the question cannot be given together. I will try and answer them separately. One, yes the correction has been healthy. In fact, today as we stand we are in almost four months of correction cum range bound movement of the market. Just to put some numbers in perspective, it was around October 18 that the Nifty peaked and from there, in four months, we have been a correction from 18,500 to about 17,300 at present.

In this whole process, the Nifty has been visibly showing about 7-8% correction. A lot of stocks have corrected sharply. In fact, some of the high quality largecap and midcap stocks are at almost one year ago level. That is the kind of erosion that we have seen, from the peak they are down 20-25-30%.


Now when it comes to investing or buying strategy, it has to be obviously different for traders and for medium term investors. For traders, this kind of movement is a God sent opportunity wherein they keep seeing the ranges in indices as well as in the stocks of their choice and they can accordingly trade.

For midcap investors, it is a good buying opportunity but I would not advise them to buy completely. They should space out their buying, at current level with the result season now coming toward the close but at the same time, oil hovering about $90 and moving towards $100, probably 30-40% investing at this point of time could be a good idea. It does not matter even if the market goes up and one has to invest the balance at a higher level. At least that gives the conviction and confidence that the market has regained its strength. So 30-40% investing is certainly advised at this level.

Do you have a view on Reliance? Also given that the crude price is now moving towards $100 per barrel, any approach towards upstream company or marketing companies?
My view on Reliance would not be short term. Short term view obviously will come from technical analysts. From the fundamental point of view, given the way the events are likely to pan out over whatever next timeframe we take – one or two years – we could see one or two IPOs of the subsidiaries coming in of Reliance Jio or Reliance Retail.

Along with that and/or without that, we can again see some divestment in the subsidiaries and some private equity investments or some stake sales coming in. As business continues to improve, Reliance’s December quarter’s numbers were quite handsome across almost across all the businesses. Given the way the stock has corrected at about 10% from the peak of the market as well as peak of the individual stock, it is positive for a medium term investor. It certainly makes sense to invest at the current level going forward.

Extending that logic to the other oil and gas companies, it does not probably make sense to invest. We have seen that almost all the OMCs, the Indian Oil, BPCL despite reporting good growth in top line, did not see that reflected in the bottom line and the reasons were multiple. In some cases it was inventory impact, in some cases it was margin compression and something like that could continue over there. I do not think that is a sector or space for investing for medium term investors. They should stay away from that while Reliance looks good.

How do you expect PSU stocks to trend going forward?
The PSU space surprisingly has been an outperformer, not only now for about close to a year and/or rather 15 months or so starting November, December 2020. It has also been an outperformer in the last four month of volatility /market correction /range bound movement. Within PSUs, more clearly in the PSU banking space, we are continuing to see outperformance coming in. The results are also showing improving trends in terms of multiple parameters. In some cases, in terms of asset quality, business growth and profitability.

Similarly, extending that in the non-banking PSU space also we have seen the outperformance, in some cases, supported by the quarterly numbers and in some case not necessarily supported by quarterly numbers but probably because of the valuation gap that had become too huge and the buying by institution as well as non-institution. So, that has been a surprising space in this whole market correction. Will it continue to outperform? As of now, it looks like yes but we have to wait and watch but as of now, it looks like they will outperform.